L3Harris Technologies, Inc.

Greetings and welcome to the L3Harris Technologies first quarter calendar year 2020 earnings call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session and instructions will be given at that time. If you should require operator assistance, please press star then zero on your touchtone telephone. It is now my pleasure to introduce your host, Mr. Rajiv Lawani, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Jess. Good morning, everyone, and welcome to our first quarter calendar year 2020 earnings call. On the call with me today are Bill Brown, our CEO, Chris Kubasik, our COO, and Jay Malave, our CFO. First, a few words on forward-looking statements and non-GAAP measures. Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. 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 investor relations section of our website, which is L3Harris.com, where a replay of this call will also be available. And to aid with year-over-year comparability following the L3Harris merger, prior year results will be on a pro forma basis, as reflected in the 8K filed yesterday. With that, Bill, I'll turn it over to you.

Okay. Well, thank you, Rajiv, and good morning, everyone. As we're all aware, the environment has changed considerably since our last update due to the global COVID-19 pandemic. Our top priority remains the safety and well-being of our employees while continuing to deliver the mission essential products and services to our customers. And I would start by thanking all of our employees for their hard work and dedication through this crisis. While we have a resilient portfolio and customer base and we're well positioned, we're not immune to the effects of COVID-19. Despite the solid start to the year, we're trimming our outlook for revenue and earnings per share due principally to our commercial aerospace exposure and our recently completed divestiture, plus some anticipated softness in international and public safety and potential risks from supply chain disruption. We move quickly with cost and other actions to offset these headwinds, holding earnings per share within 2% of our prior guidance. while increasing our margin outlook and maintaining free cash flow. Our core U.S. government business, which represents about 75% of revenue, is performing well and without significant challenges. Earlier today, we reported first quarter results with non-GAAP earnings per share of $2.80, up 21% on 5% revenue growth. Company margins increased 170 basis points to 17.5%, and adjusted free cash flow was $533 million. Total company funded book to bill was 1.11, driving funded backlog up 3% versus the prior year. These results were ahead of our expectations. We're actively assessing and monitoring global developments and continue to use best practices to mitigate risks related to COVID-19. We've mandated work from home for those who can, implemented social distancing, and canceled all travel and external events. In our production facilities, we've staggered work shifts, redesigned stations, and implemented stringent cleaning protocols. As of today, all our facilities are up and running with limited disruptions reported to date. We continue to receive a great deal of support from our key customers, the DOD, FAA, NASA, and others, and a large majority of our programs and facilities, as well as those of our suppliers, have been deemed essential to national security. The DoD has moved quickly to adjust the terms of progress payments to drive cash into the industrial base, which we have passed through to our small suppliers and started a dialogue with industry on how to size and cover COVID-19 related costs. These measures combined with potential tax deferral benefits through the CARES Act provide some risk mitigation for our company and supply chain. Looking at our credit profile, Our balance sheet remains healthy, and we expect to have over $3.5 billion in liquidity in the form of cash on hand and revolver availability at the end of the quarter. Jay will discuss this in some more detail. In these uncertain times, we continue to execute well on the strategic priorities that we previously outlined, which is helping us deal with the crisis at hand, while at the same time delivering long-term value for our shareholders. First, we continue to make great progress on integration despite the environment. Our team delivered $55 million in net synergies in Q1 from improvements in benefits and overhead costs. And we now expect to achieve $165 million of incremental net savings in 2020, up versus our previous expectation of $115 million as we accelerate savings and manage through the pandemic. And there is no change to achieving $300 million in cumulative net savings or about $500 million gross in 2021, which as we've announced before is about one year ahead of schedule. Second, we continue to drive a culture of operational excellence deep into the company to improve quality and productivity and expand margins. This was evident in our first quarter results where we built upon last year's performance and delivered E3 savings on top of synergies to offset mixed headwinds. For the year, The combination of cost synergies and E3 savings allow us to increase full year margin by 25 basis points to 17.5% at the midpoint, despite the cost absorption challenge from revenue headwinds and the expenses being incurred to fight the pandemic. And on working capital, we continue on the improvement trajectory from the stub year with another two-day operational reduction since year end and about 10 days operationally since the merger closed, primarily from better inventory management. We believe we have the tools and proper focus to manage in the current environment, leaving the path to 50 days of working capital intact for 2022. Third is to invest in technology and innovation in anticipation of customer needs to grow revenue in the long run, and we expect to sustain our industry-leading spend on R&D despite the pandemic. The team is making terrific progress in improving the efficiency and effectiveness of our investments, creating room in our budget to support investment in the growing pipeline of revenue synergy opportunities. We have now submitted 41 revenue synergy proposals, up 18 from last quarter, with another three down selects out of eight in the first quarter, primarily related to classified work in our space and aviation system segments. To date, We've been down selected on half of the 16 proposals awarded with orders booked in the tens of millions and a lifetime revenue potential of over $2 billion. Our fourth priority is reshaping the portfolio to focus on high margin, high growth, and technology differentiated businesses. And this has not changed. So far, we've announced three transactions representing about 3% of revenue that will result in about a billion dollars in proceeds. Our airport security and automation business, the largest of these announcements, closed yesterday, with two smaller ones closing later this month and by mid-year, neither of which have a financing contingency. We're still targeting divestitures in the range of 8% to 10% of revenue, including the divestitures announced to date. And while the timing is now more fluid, we continue to have active discussions and are committed to maximizing value. And then, finally, our fifth priority is to maximize cash flow and sustainably grow free cash flow per share. We're maintaining our adjusted free cash flow guide for 2020 at $2.6 to $2.7 billion and remain on track to achieve $3 billion in 2022. In the quarter, we generated over $500 million in free cash flow and returned $883 million to shareholders. including $700 million in buybacks and dividends, and dividends which were increased 13% in the quarter. For the year, we have now assumed $1.7 billion in share repurchases, including the proceeds from divestitures, which leaves us with plenty of liquidity given the environment. Moving to 2020 guidance, we expect organic revenue growth of 3% to 5% versus the prior 5% to 7%, as we consider risks related to our commercial aerospace, international, and public safety businesses due to the pandemic. On margins, again, we are expanding guidance at the upper end and narrowing the range to 17.4% to 17.6%, and we expect earnings per share of $11.15 to $11.55, with our free cash flow outlook unchanged. Overall, I'm proud of the dedication of L3Harris employees and their commitment to the mission at hand, and I'm confident in our ability to proactively manage risk so we can navigate these unprecedented times. So with that, let me turn it over to Chris to provide an update on our operations and segment performance.