L3Harris Technologies, Inc.

Greetings and welcome to the L3Harris Technologies fourth quarter calendar year 2019 earnings call. At this time, all participants are in a listen-only mode. A brief 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. It is now my pleasure to introduce your host, Rajiv Lalwani, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Michelle. Good morning, everyone, and welcome to our fourth quarter calendar year 2019 earnings call. On the call with me today are Bill Brown, our CEO, Chris Gubasik, our COO, Jay Malave, our CFO, and Anurag Maheshwari. First, a few words on forward-looking statements and non-GAAP measures. Forward-looking statements involve assumptions, risks, and uncertainties that could cause actual results to differ materially from those statements. For more information, please see the press release, the presentation, and RSEC filing. 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, which is L3Harris.com, where a replay of this call will also be available. To aid with year-over-year comparability following the L3Harris merger, discussions will be on a combined basis with prior year results along with year-to-date and first half 2019 results reflecting a combined L3 and Harris as if the businesses had been operated together during those periods. With that, Bill, I'll turn it over to you.

So thank you, Rajiv, and welcome to your first earnings call. Good morning, everyone. Rajiv has recently taken over as head of investor relations and joins us from Morgan Stanley, where he was executive director of equity research covering aerospace and defense. And we're pleased to have him on the team. I also take this opportunity to thank Anurag as he transitions to a new opportunity back home in Singapore. Anurag did a truly exceptional job as Vice President of Investor Relations over the past three years in communicating our story as we've embarked on a significant transformation and introducing our company to a broader base of investors. And he was appropriately recognized a few months ago by Institutional Investor as the number one IR professional in the aerospace and defense sector. Anurag, we wish you well. You have big shoes for Rajiv to fill. So earlier today, we reported strong fourth quarter results with non-GAAP EPS of $2.85. It's up 28% on 10% revenue growth. Overall company margin increased 240 basis points to 17.3%, and free cash flow was strong at $831 million. These results cap an exceptional first six months as a newly combined company in which we grew revenue and expanded margins in all four segments, outperformed on all guidance metrics, and delivered earnings per share growth of 27% for the second half and calendar year, with full year free cash flow of $2.46 billion. Total company funded book-to-bill was 1.02 for the second half and 1.04 for the full year, driving funded backlog of 5% and setting us up for continued top-line growth in 2020. We continue to execute well against our strategic priorities, and I'll start with an update on our progress on slide four. Then Chris and Jay will provide details on segment results and calendar 20 guidance. First, integration is progressing ahead of plan, and in the first six months since close, we delivered $65 million of net synergies, or $15 million higher than our previous guidance. This momentum, along with a well-defined path to generate $180 million of cumulative net savings in 2020, give us confidence in achieving our $300 million net savings target, or $500 million growth, earlier than anticipated and about a year ahead of plan. Second, while integration projects are well underway, we continue to make great progress on lowering cost, driving productivity, and improving working capital performance as part of our normal operational excellence program called E3, and you're seeing the benefits in our reported results. Since June, we've lowered working capital by eight days, primarily from better inventory management, with plenty of runway ahead of us. In addition, we've established common operating metrics and set improvement goals at all major sites, with a rigorous reporting and review cadence put in place. I'm very pleased with the way the teams have leveraged E3 to deliver immediate benefits that have helped offset mix and investment headwinds, and I'm confident this focus will drive organic margin expansion longer term. Third, we continue to invest smartly in technology and innovation in anticipation of customer needs to support future growth. In the past six months, We've analyzed our combined R&D spend of about $700 million with a focus on improving both the efficiency and effectiveness of our investments. Since the close, we reduced the number of R&D projects by about 30% and redeployed about 10% of our spend from overlapping or discontinued projects to focus on areas where we can go revenue, increase share, and expand it into adjacencies, including supporting newfound revenue synergy opportunities. We've now submitted 23 revenue synergy proposals, and that's up nine from last quarter. And of the eight that have been awarded, we were down selected for five. If we're successful on these five and that they fully develop, we estimate a lifetime revenue potential of about $2 billion. Our fourth priority is reshaping our portfolio to focus on high margin, high growth, technology differentiated businesses where we can win and generate attractive returns. While the effort is ongoing, we've made progress and just announced a definitive agreement on the sale of our airport security business for $1 billion to Leidos, which we expect to close by mid-year with net proceeds used to repurchase shares and offset dilution. Although this is the first and largest transaction we're contemplating, our portfolio shaping process is ongoing and may ultimately result in 8% to 10% of total company revenue being divested over time. And as we've said before, this will not impact our $3 billion free cash flow target in 2022 and will continue to communicate transactions as they occur. And finally, our fifth priority is to maximize free cash flow with shareholder-friendly capital deployment to drive value on a per share basis for our owners. In the second half, we generated free cash flow of $1.45 billion or $110 million higher than guidance. driven by better than expected working capital performance, while returning $1.8 billion to shareholders. We're well on track to deliver on our commitment to buy back $2.5 billion in shares over the first 12 months post-merger, with $1.5 billion recently completed in the stub period and $1 billion planned for the first half of 2020. Overall, I'm very pleased with the progress we've made as a newly combined company, and expect to build on those momentum in 2020 as we leverage a well-funded defense budget, benefit from our increased scale, and continue to execute against our strategic priorities. For 2020 guidance, we expect earnings per share of $11.35 to $11.75, up double digits on organic revenue growth of 5% to 7%, and free cash flow of $2.6 to $2.7 billion, implying free cash flow per share of approximately $12.25 at the midpoint. In line with our commitment to shareholders, this year we plan to return more than $3.5 billion through share repurchases and dividends, which we're able to do as a result of strong operational performance, accelerating cost synergies, and successfully executing on our portfolio shaping strategy. And with that, let me turn it over to Chris to provide an update on operational and segment financial performance.