L3Harris Technologies, Inc.

Greetings and welcome to the L3Harris Technologies second quarter calendar year 2020 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, and welcome to our second quarter 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 our press release, presentation, and 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. With that, Bill, I'll turn it over to you.

Okay. Well, thank you, Rajiv, and good morning, everyone. I want to start by thanking L3Harris employees for their hard work and dedication over the last several months. The pandemic has challenged us all to find new ways of working effectively, and our team has responded well to ensure we continue to meet the mission-critical needs of our customers, even as the virus spreads across southern states where we have a large presence. And as the environment evolves, the health and safety of our employees will remain our top priorities. All of our facilities are up and running and adhering to well-established protocols, such as daily health screenings, face coverings, social distancing, and adjusted work schedules. Our work-from-home policy remains in place for about half our workforce, and we are prepared to operate under these conditions over the coming quarters. We continue to pay close attention to our supply base and monitor our risk position daily, and we've successfully implemented mitigation plans where needed. including developing alternative sourcing, providing on-site assistance, and working with local authorities to secure closure exemptions. In addition, we accelerated nearly $250 million in supplier payments within the quarter, and we plan to continue that support through year-end. We're also doing our fair share to support our communities, healthcare workers, and first responders through the pandemic, and we continue to hire aggressively to meet our growth needs, adding about 3,000 employees through June, and bringing on board our largest cohort of interns and new college grads ever. Chris and Jay will walk through the details in a minute, but as you saw earlier today, we reported second quarter results with non-GAAP earnings per share of $2.83, up a solid 13% against a tough backdrop. Company margins increased 150 basis points to 18.2%, and adjusted free cash flow was $785 million, all above expectations. Reported revenue was flat, but adjusted for divestitures was up about 2.5%, a strong 8% growth in our core U.S. government-related businesses, more than offset a modest decline on the international side, and a 35% drop in our small commercial businesses, consistent with what we anticipated. Total company funded book to bill was 1.09, with funded backlog growing about 5% since the beginning of the year, when adjusted for divestitures. Our strategic priorities have remained the same since we closed on the merger a year ago, and we're proud that our nearly 50,000 employees quickly aligned as one operating company. And we're pleased with how well the team is executing and avoiding operational missteps, despite the many moving parts. Integration continues to progress well with net synergy savings of $60 million in the quarter and $115 million year-to-date. We have not seen a slowdown in activity due to COVID and now believe we can deliver $185 million in net savings this year, up $20 million from prior estimate, largely due to a steady ramp in savings from the supply chain, shared services, and benefits. Our integration roadmap is very methodical and rigorous, with a weekly cadence of top-down reviews, and we continue to expect to achieve $300 million in cumulative net savings in calendar 21, one year ahead of our original plan. We're making good progress in driving a culture of operational excellence deep into the company, and through the quarter, we continue to hold training sessions and conduct lean assessments, quality clinics, and value engineering events despite the inability to travel. As we've said before, E3 savings are additive to synergies and were a key part of the margin expansion we achieved in the quarter and year to date, but more importantly are essential to expanding margins beyond the integration window. Investments in technology and innovation remain at the top of our agenda and are key to long-term revenue growth. Since the closing, we fully implemented a rigorous stage-gate process called Checkpoint and cut 30% of IRAD projects to sharpen our focus on key strategic themes around spectrum superiority, actionable intelligence, and warfighter effectiveness, while positioning for the shift to an integrated networked battlefield. We are investing heavily in multifunction, software-defined, open architecture systems that allow us to deliver mission solutions independent of the platform. These investments are evident in our increasing traction on revenue synergies. We've now been down selected on 13 out of 23 proposals and continue to build on our multi-billion dollar pipeline. While we're still in the early innings, the collaboration we're seeing across segments is really impressive with the process to identify new revenue synergy opportunities nearly self-sustaining. On portfolio reshaping, we are set to close today on the divestiture of EOTech, a small consumer-facing business bringing total transactions to date to four with proceeds exceeding $1 billion. We're now about one-third of the way toward our bottoms-up estimate of divesting 8% to 10% of revenue, with more progress expected in the coming quarters as we increase our focus on businesses where we're best positioned to win. In our maximizing cash generation, we delivered $785 million of free cash flow in the quarter and about $2.7 billion on an LTM basis, growth of over 20% on a per share basis. Our strong performance, along with divestiture proceeds, drove a cash balance of $2 billion at quarter end and supports our prior commitment to return capital to shareholders in the third quarter. Longer term, we see a clear path to achieving $3 billion free cash flow in calendar 22, driven in part by continued improvement in working capital. In the quarter, we achieved another two-day sequential improvement with solid momentum toward a calendar 22 goal of sub-50 days from 68 at merger close, adjusted for divestitures and accounting items. Slide 4 illustrates the opportunity ahead of us. Ten businesses account for about 75% of our working capital, six of which have more than 75 days on hand. Driving those six to current company average of 55 days would generate nearly half a billion dollars of cash flow, with the largest opportunity tied to lower inventory. Shorter cycle times, better forecasting, product rationalization and part commonization, vendor-managed inventory, and improved supplier delivery performance. The levers are clear, we've done it before, and the team is focused and motivated to get it done. Finally, we're all watching carefully the progress towards a 21 defense budget and signals from Congress, the Biden campaign, and the Trump administration on the budget trajectory in 22 and beyond. We're encouraged by the bipartisan support in advancing the fiscal 21 National Defense Authorization Act through the House and Senate, And we believe that the heightened threat environment will drive the trajectory of U.S. military spending regardless of the election. And while we're conscious of the risks surrounding elevated deficits, we believe our technological capabilities and opportunity set position us well over the coming years. Recent House and Senate marks support this as we saw ongoing strength in areas like tactical radio, aircraft ISR, F-35, and space. And classified budgets are also set to be well-supported. So between budget positioning, revenue synergies, margin expansion potential, and shareholder-friendly capital deployment, we remain confident in our ability to sustain double-digit earnings and free cash flow growth per share in the medium term. And with that, I'll now turn it over to Chris to discuss segment results.