L3Harris Technologies, Inc.

Greetings, and welcome to the L3Harris Technologies fourth quarter calendar year 2020 earnings call. At this time, all participants are in 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 call 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, Rob. Good morning, and welcome to our fourth quarter 2020 earnings call. On the call with me today are Bill Brown, our CEO, Chris Cubasic, 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.

Well, thank you, Rajiv, and good morning, everyone. Earlier today, we reported fourth quarter results and I'd like to start by thanking our employees for their continued dedication and perseverance through 2020. Despite COVID, we've met customer commitments, advanced the integration, and delivered bottom-line results ahead of initial expectations, all while keeping our workforce safe. We'll continue to follow mitigation plans implemented at the onset of the pandemic and keep them in place until widespread vaccinations have occurred. As a combined company, we're successfully executing the strategy we laid out a year and a half ago to drive shareholder value, and our progress is reflected in our operating results and outlook. First, we delivered solid results in 2020, where we exceeded our initial guidance on margins, earnings per share, and free cash flow, offsetting the negative impacts of the pandemic with a solid 7% growth in our core U.S. government business and modest growth on the international side. Margins expanded 120 basis points to 18 percent from synergies and operational excellence and drove earnings per share of 13 percent, consistent with our double-digit growth framework. With an eight-day improvement in working capital, we also generated strong free cash flow of nearly $2.7 billion. This, along with progress on portfolio shaping, enabled us to return $3 billion to shareholders and deliver growth and free cash flow per share of over 10%. Second, our guidance for the current year shows continued momentum in the business. With the fiscal 21 budget now set and broad program support across key areas, we're in position to deliver mid-single digit organic revenue growth at the midpoint, underpinned by the building blocks we previously described. Our DoD portfolio is well aligned with national security priorities And while the overall budget is flat, we expect at least low single-digit growth driven by space, maritime, DOD modernization, and classified programs. Revenue synergies will contribute about a point of growth, with the notable driver being the SDA Tracking Layer Award, as well as continued traction elsewhere with a win rate of about two-thirds of the 40 proposals awarded to date. On the international front, we expect about another point from mid-single-digit growth plus backed by a funded book-to-bill of above one in 2020 and a growing pipeline of pursuits. And then finally, in our commercial businesses, we foresee a more modest impact of full-year results as we lap COVID pressures following the first quarter. We also expect another year of margin expansion supported by increased synergies and continued operational excellence net of dilution from new program starts. We exited the year at $270 million in net cumulative synergy savings, $20 million ahead of our prior estimate. And with more confidence in savings from the supply chain, facility rationalization, shared services, and functional efficiencies, we're now increasing our cumulative savings to $320 to $350 million in 2021. up from a prior estimate of $300 million plus, and still a year ahead of schedule. Our free cash flow guide of $2.8 to $2.9 billion demonstrates clear progress towards our $3 billion target in 2022, with all cash used for capital returns to support double-digit earnings and free cash flow per share growth. Yesterday, we announced that our board approved a new $6 billion share repurchase authorization alongside a 20% increase in our dividend, the third raise since we closed, and bringing us closer to our target of a 30% to 35% payout of free cash flow. And then finally, we continue to position the business for long-term value creation by exiting non-core businesses and focusing our significant R&D investment on more strategic, technology-based business areas. We're now in the latter stages of several portfolio shaping processes, and we'll look to provide updates over the coming months. Our expectation continues to be for divestitures to represent a cumulative 8 to 10 percent of revenue, with about a third completed to date, and all proceeds going towards repurchases. And we'll continue to sustain R&D spending at a peer high of nearly 4 percent of revenue, with a focus on open architecture multifunction, software-defined solutions across our broad C5 ISR portfolio of capabilities. These technologies are essential to countering near-peer threats across all domains, and our past investments were the driver behind the recent SDA tracking layer, HBTSS, and next-gen jammer wins. So overall, we're clearly making progress in building a high-performance, technology-focused operating company and positioning L3Harris as a full end-to-end mission solutions prime. And with that, let me turn it over to you, Chris.