L3Harris Technologies, Inc.

Greetings and welcome to the L3Harris Technologies fourth quarter fiscal year 2019 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host for today, Anurag Meshwari, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Dana. Good morning, everyone, and welcome to our fourth quarter fiscal 2019 earnings call. On the call with me today is Bill Brown, CEO, Chris Kubesik, CEO, and Jay Malawi, CFO. First, a few words on forward-looking statements. Discussions today will include forward-looking statements and non-GAAP financial measures. Forward-looking statements involve assumption, risk, and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release, the presentation, and our SEC filings. A reconciliation of non-GAAP financial measures to comparable GAAP measures is included in the quarterly materials on the investor relations section of our website, where a replay of this call also will be available. As supplemental information for investors, discussions also will include selected L3 and Harris combined financial information, which combines the historical operating results as of the businesses that had been operated together on the basis of a newly announced four-segment structure during prior periods, but excluding the operating results of Harris' night vision business and L3's divested businesses. With that, Bill, I'll turn it over to you.

So thank you, Anurag. Good morning, everybody. I'm excited to welcome you to our first-ever L3 Harris Technologies earnings call. I'm also pleased to welcome our new Chief Financial Officer, Jay Malave, who joined us on July 1st from United Technologies, where he most recently was CFO of Carrier. Prior to that, Jay spent more than 20 years in the aerospace businesses, including as CFO of Unit Technologies Aerospace Systems and working the integration of the Goodrich acquisition. Many of you know Jay from his time leading the investor relations function at United Technologies, and I'm thrilled to have him on board and confident he will be a strong business partner to me, Chris, and the rest of the management team. As you're aware, on June 29th, in fact, in minutes after we ended Harris's fiscal 19, we successfully completed the transformative merger, establishing L3 Harris Technologies, and we really hit the ground running. On the first working day after closing, we consolidated headquarters activities between Harris and L3 and announced our new organizational model, creating four mission-focused segments that combine the top talent of both companies. In the first week, We completed 115 town halls with senior leadership touching 80% of all employees. And then in the second week, we held a multi-day leadership meeting where Chris and I shared our joint vision, values, and operating philosophy with nearly 100 executives and then set out our initial game plan. And I have to say that the level of energy and excitement across the company is extraordinary. So we're off to a good start as a combined company. We'll talk more about that in a few minutes. So let me first begin by providing an update on Harris's fourth quarter and fiscal 19 results, followed by Chris with L3's Q2 and first half results, and then Jay with combined L3 and Harris financials and guidance. So starting with Harris on slide three, we ended fiscal 19 on a high note with fourth quarter non-GAAP earnings per share of 39% on revenue growth of 12%, the highest top line growth we've seen in eight years. Overall company margin in the fourth quarter expanded 80 basis points to a record 20.2%. These results cap an exceptional year in which we accelerated revenue growth and had margin expansion in all three segments. We outperformed on all guidance metrics, and we delivered a record earnings per share of $8.29, up 30%, and free cash flow of $1.055 billion. Total company book-to-bill was 1.1%, driving funded backlog growth of 12%, and setting us up for continued top-line growth. All three segments contributed to our strong performance, driven by their top-line growth, which continued to exceed expectations. Let me take a few minutes to recap some of the highlights of the year on slide four and five, with additional segment detail in the appendix. Communication systems had a terrific year, with revenue up 14%, from solid growth in DoD tactical and public safety. DoD tactical ended the year with revenue up 31% from last year and up 80% from fiscal 17. This strong growth was driven by nearly $300 million of modernization demand from the Army, Marine Corps, and SOCOM as they embark on a multi-year upgrade cycle. Modernization order momentum continued in the quarter with the Army awarding us a second HMS MANPAC LRIP order followed in July with the release of the two-channel leader radio RFP. We also continued to execute well on our strategy to penetrate adjacent airborne markets and were awarded the initial prototype phase of the Air Force's Airborne High-Frequency Radio Modernization Program, expanding our leadership in HF from ground to airborne. International tactical performed as expected, and revenue was up 3% for the year. driven by the ramp of the Australian modernization program, early adoption of multi-channel products in Canada and Western Europe, and ongoing counterterrorism support in Africa. Overall, Tactical ended the year stronger than initially expected, with revenue up 14%, a book-to-bill of 1.1, and backlog up 17% to $1.1 billion. This combined with a well-supported DoD budget request increasing international demand for two-channel radios, and executing on expansion into adjacency gives us confidence in the continued growth trajectory and tactical for the second half of the year and the medium term. In electronic systems, revenue increased 14%, the ninth consecutive quarter of revenue growth, ending the year up 9%. This strong performance was driven by sustained growth in long-term platforms, F-35, F-18, and F-16, and more recently by growth on B-52 and SOCOM rotary aircraft, all of which collectively grew double digits as we leveraged technology upgrades and ramped production. Orders were strong in ES, ending the year at nearly $3 billion in bookings, with two-thirds from the avionics and electronic warfare franchises, as we continued to leverage our longstanding customer relationships to solidify our position on new and long-term platforms. In April, we received a $340 million award for F-35 release systems supporting LRIP 12 through 14, which means all of our F-35 production content across avionics and release systems is now under multi-year contracts, which increases medium-term visibility. We also received a $72 million production order to deliver upgraded countermeasure electronic warfare systems for the B-52 platforms. bringing that program's current value to over $430 million against a $1.3 billion total opportunity. This order momentum, along with our investments in innovation, increased content on existing platforms, and expansion on the next-gen platforms will drive a multi-year growth cycle in avionics and electronic warfare. In space and intel, revenue was up 8% for the quarter and the year, well above our initial expectation of 4% to 5%, driven by mid-teens growth in our classified business. Order momentum was even stronger as we saw continued success in strengthening incumbent positions and expanding the addressable market of our classified business by providing end-to-end mission solutions and penetrating new adjacencies. I'm also pleased with our relentless focus on operational excellence, which drove margin expansion across each of our segments, despite the mixed challenges that come with new program starts. Our operational excellence program, called HBX, has driven net productivity savings that have more than offset the dilutive margin impact of DoD tactical modernization and revenue growth on long-term platforms in classified space, resulting in total company margin of 20.2% for the fourth quarter and 19.8% for the year, 90 basis points of margin expansion. Similarly, our multi-year focus on working capital has delivered terrific results, We ended the year with working capital of 41 days, a four-day improvement over last year, and a 37-day improvement since the Excellus acquisition. A working capital reduction combined with earnings growth resulted in record free cash flow of $1.055 billion, exceeding the post-Excellus acquisition goal of $1 billion by 2019. Overall, we had an outstanding year of accelerating revenue growth, margin expansion, and record EPS and free cash flow. exceeding the targets we set for ourselves. And we'll continue building on those momentum as we go forward as L3Harris to drive continued above-market growth, margin expansion, and cash generation, creating long-term value for our shareholders. Let me now turn it over to Chris to discuss L3 results for the quarter and the first half.