L3Harris Technologies, Inc.

Greetings. Welcome to the L3 Harris Technologies second quarter calendar year 2021 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 Lawani, Vice President of Investor Relations. Thank you. You may begin.

Thank you, Rob. Good morning, and welcome to our second quarter 2021 earnings call. On the call with me today are Chris Kivesic, our CEO, 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 GAAP comparable 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. With that, Chris, I'll turn it over to you.

Well, thank you, Rajiv, and good morning, everyone. I'd like to thank the entire L3Harris team for a job well done as we began our third year as a new company. We are executing the integration plan and have exceeded many of our targets despite challenges such as the pandemic. The high performance culture and leadership team we've created are set to carry this momentum forward, which is reflected in today's results. We reported a strong second quarter. Organic revenue was up over 6% with growth across our key end markets and all four business segments. Funded book-to-bill was 1.0 for the quarter and 1.05 year-to-date. Margins increased to 18.6%, resulting in EPS of $3.26, up 15%. We had solid free cash flow of $685 million, which contributed to shareholder returns above $1 billion, including repurchases of $850 million in the quarter and over $1.5 billion year-to-date. Our first half performance, coupled with our expectations for continued execution in the back half, more than offset the divestiture headwinds and supports another raise to our EPS guidance, which Jay will cover. Execution against our strategic priorities that are on slide three continue to deliver results and create value for the company's stakeholders as we make progress and build momentum with top line opportunities, operational performance, announcing and closing divestitures, and delivering on our capital return commitments. In terms of the top line, we had our best quarter since the start of the pandemic, with progress against our key end market growth objectives, while seeing data points that validate our focused R&D strategy. Our government businesses were up 6% in the second quarter, driven by double-digit growth internationally. Our international revenue benefited from increased aircraft ISR and radio sales to regions in the Asia Pacific and Europe. And on the domestic front, the growth was broad-based with our responsive space and maritime programs, as well as land modernization for night vision and SATCOM products leading the way. Our strategy to deliver end-to-end mission solutions utilizing the capabilities and scale across the broader organization continues to gain momentum. Our space business strategy is working as we grew 10% in the quarter, capturing classified awards totaling over $300 million for ground and responsive satellite solutions. These awards are also part of the revenue synergy capture efforts and bring awards to date to over $700 million on a win rate of 70% from our growing $7 billion plus pipeline. Turning to our commercial aerospace and public safety businesses, They were up over 5% in aggregate and were led by our commercial aerospace business up double digits off a low base and from strength in product sales. On the public safety side, there was a modest decline, but with sequential improvement and increased bid and proposal activity from a more stable backdrop. Our solid top line was accompanied by backlog growth as we continue to win strategic programs that include several prime roles. Backlog increased 7% organically year-over-year to over $20 billion, with notable award activity across all domains. On the space side, our revenue synergy awards came from combining electronics and optics capabilities across the company to deliver solutions for an increasingly contested environment. These are incremental to the Pathfinder programs we previously won, which have billions of dollars of potential over time. Customers are viewing L3 Harris as a trusted disruptor. They see us as a company that understands the complexity of the mission and can offer fresh and creative solutions. With a three-year space pipeline of nearly $20 billion, there's more opportunity for continued growth. Within the air domain, we strengthened our existing F-35 franchise with initial production awards for the aircraft memory system and the panoramic cockpit display electronic unit, under the TR3 program. This brings total orders year-to-date on the platform to about $500 million. We're progressing on all three TR3 systems through integration and qualification this year and in support of the planned Lot 15 cut-in of the production hardware. We are also secured a roughly $100 million IDIQ with SOCOM for infrared EO sensors on rotary platforms furthering our modernization opportunities across L3 Harris. Moving over to the land side, we signed several key contracts that touched both international and domestic markets. First, we received a $3.3 billion five-year IDIQ for foreign military sales to a range of partner countries from our new, broader portfolio of products, including radios and SATCOM terminals. This replaces our prior five-year $1.7 billion contract, which supports and validates the continued modernization across geographies and expands our product scope. Second, in the UK, we received a logistic support contract covering legacy Bowman and future Morpheus radios, positioning us well for a billion-dollar modernization opportunity in that country. And third, we want a competitive 10-year IDIQ to supply the U.S. Air Force with our T-7 multi-mission robots, further expanding our customer reach after launching the T-7 with the UK a few years back. We're now pursuing other international opportunities in the robotic area. Within the sea domain, our team was successful in extending its leading prime position in undersea sensor systems and warfare training for a range of the U.S. Navy platforms and support of distributed maritime operations. This undersea warfare training range program called USWTR has an award value of nearly $400 million and further builds our credibility to pursue additional domestic and international opportunities. In the cyber domain, while limited to what we can say due to the classified nature, our billion-dollar Intel and cyber business received over $250 million in orders for complex mission solutions and specialized communications for both domestic and international markets, leading to another quarter of book-to-bill above 1-0 for this business. We also had a key award in an adjacent market with our public safety business with a 15-year, $450 million contract from the state of Florida to upgrade and continue operating its law enforcement system for first responders. Moving over to the budgets, while the process is ongoing and we await a FIDEP, we were pleased with the initial request for the FY22 budget as a support stability in the DOD, NASA, and FAA spending, and is aligned with our capabilities and investment priorities. For the DOD, it's focused on continuing to revolve around and address near-peer threats through high-value technology, which Congress is reviewing. And when we look at the portfolio and the relevant line items, our programs are well supported. This builds on the trend we've seen in international markets, where there's a broad stability in military spending, including key countries such as the UK, Australia, Canada, Japan, amongst others. We're also seeing growing demand for the type of defensive systems we offer for our alignment with the U.S. export policies to ensure partner security. Our most significant opportunities remain for ISR aircraft missionization and other upgrades, land force modernization, and enhanced maritime systems. All in all, as we consider the trajectory of our top line over the coming years, we remain confident in our ability to outgrow the budget and deliver sustainable growth through our domestic positioning, revenue synergies, and international expansion that drive a large pipeline of opportunities underpinned by our leading R&D investments. Shifting to operational performance, we continue to surpass milestones for priority programs. For example, at SAS, the team completed a successful preliminary design review for an advanced EW solution called ViperShield that can deliver self-protection capability for Block 70 F-16s. At IMS, we advanced our unmanned maritime strategy with several customer engagements and demonstrations highlighting differentiators in predictive autonomy on USVs, as well as a submerged torpedo tube launch and recovery for our small UUVs. We also successfully completed a prototype demonstration for a SOCOM multirole aircraft in a variety of challenging conditions while utilizing the breadth of L3Harris offerings. And financially, we had another quarter of strong margins as the team continues to offset mixed impacts from early stage programs with three E3 initiatives including program excellence and factory productivity, allowing us to flow through cost synergies totaling an incremental $27 million in the quarter. In addition, the first half synergy run rate is now $350 million, driven by progress on facilities, consolidation, and IT efficiencies. We see this as the minimum level we'll deliver on this year, up from the $320 million to $350 million range we discussed in April and still a year ahead of schedule. Any upside from here will be incorporated in our E3 program, with our integration efforts blending into operational excellence initiatives. On margins for the year, this leaves us at about 18.5% for the top end of the prior guide, and a level we'll look to build on in the years ahead. Next, on capital allocation, today we announced the sale of two small businesses within our aviation system segment for $185 million in cash, and these should close before year end. When combined with the roughly $2.5 billion divested under our portfolio shaping initiative, total gross proceeds are set to be $2.7 billion. We have now divested nearly 10% of our revenues, and with the completion of a few others in process, our portfolio shaping program announced in 2019 is largely complete. Proceeds from divestitures, including those from the recently completed military training and combat propulsion businesses, will be part of our capital returns program consistent with our shareholder-friendly capital allocation approach. Our expectation now is for buybacks to be roughly $3.4 billion this year, up versus our prior guide of $2.3 billion. When combined with dividends, capital returns will be about $4.2 billion in 2021. So to wrap up, I'm pleased with the execution against our strategic priorities competent in our ability to consistently deliver double-digit EPS and double-digit free cash flow per share growth. And I'm excited about the next phase for L3 Harris. With that, I'll hand it over to Jay. Thank you, Chris, and good morning, everyone.