L3Harris Technologies, Inc.

second quarter 2025 earnings conference call. At this time 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 call is being recorded. It is now my pleasure to introduce your host Dan Gietzowicz, Vice President Investor Relations. Please go ahead.

Thank you Sylvie. Good morning and welcome. Joining me this morning are Chris and Ken. Earlier today we published our second quarter earnings release detailing our financial results and increased 2025 guidance along with a supplemental earnings presentation available on our website. We will also file our 10Q later today. Today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information please reference our earnings release and SEC filings. We will also discuss non-GAAP financial measures which are reconciled to GAAP measures in the earnings release. With that I'll turn it over to Chris.

Good

morning

everyone. Our opportunity set is more robust than it's been in decades. Driven by increased global threats requiring speed, capability, and modernization. These dynamics are unfolding across both US and international markets creating a significant opportunity for companies that can move fast and deliver on time. L3 Harris is uniquely positioned to lead in this environment. Our trusted disruptor strategy keeps us agile and after investments in the business along with acquisitions and divestitures our portfolio is aligned with our customers mission critical priorities enabling us to execute with a sense of urgency as we head into the second half of the year. Over the last few months I've had several meetings with senior DOD leaders and one message is consistent and clear. Companies that deliver on schedule will be rewarded with new opportunities such as golden dome and missile capacity expansion. I'm proud to say we're doing just that. For example on F-35 our systems are ahead of need and we are off the critical bath for combat capable TR-3 aircraft. Turning to LHX next savings we set a goal of taking out one billion dollars of cost over a three-year period and we're currently tracking 40 percent ahead of that target and a year earlier than planned. Putting us on track to achieve our 2026 margin target. At Aerojet Rocketdyne integration is complete and we've doubled deliveries, we've doubled production rate and we've reduced the cost of poor quality since the acquisition. This performance gives us and our customers confidence and positions us as a dependable partner. Our second quarter results underscore strong execution and represent an point for our business. We posted our highest organic growth in six quarters and achieved a record book to bill of 1.5. Clear evidence of the momentum behind our strategy and the alignments of our portfolio with the future of warfare. In May the administration released its full fiscal year 26 budget request calling for about one trillion dollars in national defense funding including 155 billion signed into law through the recent reconciliation bill. The budget is focused in areas where we are well positioned. We're seeing accelerated investments in space based architectures, missile systems, autonomous platforms and software defined capabilities. All core strengths within our company. The Golden Dome initiative is a leading example of our commitment with U.S. national security priorities and momentum is building. Congratulations to General Gutlein on his confirmation as the direct reporting program manager of Golden Dome, accountable for delivering key capabilities of this system within three years as a direct report to Deputy Secretary of Defense Feinberg. His appointment marks an important milestone for one of the most consequential homeland security initiatives in our history and we're excited to see a proven leader in place. At L3 Harris we've been preparing for this eventuality. As we shared on our last call our ability to detect hypersonic threats is a critical component of the Golden Dome architecture. We're preparing to deploy a full constellation of 40 to 45 proven HBTSS satellites in a timely manner. This isn't a coincidence as we've invested in Florida and Indiana to scale up space sensor manufacturing and payload integration. We're ready to deliver the HBTSS constellation called for in the executive order. Moving to ground based interceptors, our propulsion and divert and attitude control systems support nearly every U.S. interceptor program in development or production. We are rapidly scaling solid rocket motor manufacturing to meet the nation's urgent demand and this effort carries additional personal urgency. I made a commitment to the Deputy Secretary of Defense and the Under Secretary of Defense to increase capacity and accelerate deliveries and I intend to keep it. In partnership with Governors Sanders and Youngkin we're investing in Arkansas and Virginia to increase solid rocket motor deliveries and drive record production levels. We're not waiting, we're responding to clear demand signals and delivering now. Internationally the outlook remains robust. NATO members are now targeting defense spending increases to 5% of GDP with much of that investment focused on restocking and modernization. This shift is already translating into meaningful orders for L3 Harris and supports sustained medium to long-term international growth for us. A great example, we recently secured software-defined radio awards from the German and Czech armed forces, the type of wins that would not have been likely a decade ago. This represents not only alignment with allied modernization priorities but also instances where we're replacing indigenous providers, a direct result of our resilient interoperable battlefield proven technology and expanding global footprint. With this backdrop, the right strategy, an aligned portfolio, strong demand, operational momentum and solid financial performance, we are highly confident in our ability to achieve our 2026 financial framework. We also see a clear path to profitable growth beyond 2026 driven by our alignment with long-term defense priorities both in the U.S. and globally. With that, I'll turn it over to Ken.

Thanks and good morning, everyone. We are at the onset of a generational opportunity for L3 Harris given our capabilities and positioning across key discriminating technologies. Let's talk about consolidated results for the second quarter. Starting with orders, we had a record $8.3 billion this quarter resulting in a 1.5 book to bill. Revenue was $5.4 billion reflecting strong organic growth of 6%. This growth was driven by new programs ramping and increased demand across all segments. Segment operating margin was .9% up 30 basis points marking the seventh consecutive quarter of -over-year margin expansion. Non-GAAP EPS was $2.78 up 16% -over-year. And on a pension adjusted basis, EPS was $2.42 up 22% -over-year. Free cash flow was $574 million driven by increased operating income and improved working capital performance. Turning to the segment's second quarter results, CS delivered revenue of $1.4 billion up 2% driven by increased demand for resilient communication equipment and related waveforms. Operating margin remains solid at .4% reflecting higher domestic volumes and LHXnext-driven cost savings. IMS revenue was $1.6 billion up 6% organically with an operating margin of .2% up 120 basis points. Revenue increased due to the ramp up of several classified ISR programs. Operating margin increased due to the monetization of legacy end of life assets partially offset by an unfavorable EAC adjustment from the resolution of a subcontract matter related to lower utilization on the Canadian maritime helicopter program. Execution performance on the program was strong. However, payment was tied to customer mission cadence which was well below original bid expectations. The contract is nearing completion and we do not expect to see more negative EAC adjustments. SAS revenue was $1.8 billion up 7% organically primarily due to increased volume in FAA networks and improved program performance in airborne combat systems business. Operating margin was .3% down 30 basis points due to an unfavorable mix partially offset by LHXnext cost savings. Air jet Rocketdyne delivered strong results with 12% organic growth and a 2.0 book to bill. Growth was driven by improved production volume across key missile programs and new program ramps. This marks the highest revenue quarter on record for AR driven by the unprecedented demand in the missile solutions business that we expect to continue for an extended period. Operating margin increased 50 basis points to .3% due to solid performance, LHXnext driven cost savings, and a favorable contract resolution. We are always striving to improve our operations including reassessing certain unfavorable contract positions, rationalizing non-core legacy business lines, and monetizing legacy assets. An example is the action we took at IMS to exit an unprofitable legacy contract position while at the same time monetizing associated legacy assets. The resulting impacts offset and created a net favorable position for the quarter. Now let me turn it back to Chris.

Thanks Ken. As we look ahead several milestones from the quarter highlight our momentum and reinforce confidence in our long-term vision. First we secured approximately 200 million in orders to deliver software defined interoperable communication systems to Germany. Secure resilient communications across NATO allies are critical to operational readiness and our systems are already delivering on that mission. This award adds to recent wins for our Falcon software defined radios including the Netherlands Foxtrot program along with continued momentum on the US Army's HMS programs. These wins further strengthen our market leadership and resilient communications and our key comm sector backlog today is almost three billion dollars a 50 percent increase from a few years ago. Turning to solid rocket motors we broke ground on a new production facility in Virginia including a cast and assembly center. These modular robotic enabled facilities will significantly increase capacity, enhance efficiency and quality, and reduce product travel time distances by 90 percent. This complements similar expansions in Arkansas and Alabama. It's a major step forward in building out the defense industrial base and reflects the progress we've made in the short time since integrating aerojet rocket dying. Demand for solid rocket motor production continues to rise driven by global conflicts. Our aerojet rocket dying missile solutions business grew 15 percent in the quarter and is up 16 percent year to date. Growth review is durable and likely to continue for decades. Demand is exceptionally strong and we see significant opportunities for further investment in the business expanding manufacturing capacity, increasing the workforce and accelerating deliveries to meet long-term needs and to support sustained growth. We also continue to see strong demand across our space propulsion portfolio. This quarter we secured a major award for 130 upper stage RL-10 engines valued at nearly 850 billion dollars highlighting our trusted role in enabling space launch missions. Our ongoing partnership with Palantir on the U.S. Army's Titan program continues to mature. The team is nearing initial deliveries on the first four AI-defined vehicles equipped with our common data links, link 16, secure SATCOM and tactical multi-domain waveforms enabling the Army to process targeting data faster and more effectively on the battlefield. I'm proud to highlight our engagement with the FAA's Newark task force where we played a critical role in supporting Secretary Duffy to meet his goal of enhancing the resilience of our communication networks at the Newark airport. Our efforts were pivotal in upgrading the telecom infrastructure ensuring robust and reliable communications for one of the nation's busiest airports. And in the airborne domain we delivered our second missionized global 6500 for ISR to the Army reinforcing our position as the world's leading biz jet missionization provider. With over 100 aircraft delivered and 14 currently under modification, our platform agnostic approach and speed to field capability continue to differentiate our offerings. Together these awards and infrastructure investments reflect a common theme. We are accelerating the deliveries of agile proven solutions to address current and future threats. Back

to you Ken. First an update on LHX NEXT, then I'll move into guidance updates. The current phase of the LHX NEXT program is focused on enterprise transformation, deploying the LHX operating system, digitizing core business processes and embedding AI enabled tools across the business. These initiatives are not only improving execution and decision making, but they're also building a more scalable, efficient foundation for growth. We're already seeing results from improved operational performance to new business wins and we expect these transformation efforts to drive sustained revenue growth and cash generation over the long term. Turning to guidance updates for 2025. Our increased guidance reflects our strong first half performance and improved outlook for the rest of the year. For the total company, we are increasing revenue guidance by 200 million, expecting strong organic revenue growth of 5% for the year. We are maintaining and are increasingly confident in our segment operating margin guidance of mid to high 15%, supported by continued LHX NEXT savings and confidence in strong program execution. Non-GAAP EPS guidance reflects a 40 cent increase from strong first half operating performance and a higher revenue outlook, partially offset by a 30 cent headwind from recent tax reform. While eliminating the requirement to capitalize and amortize R&D expenses, it has some near term tax rate headwind. As a result, we are raising our non-GAAP EPS guidance by 10 cents. We are increasing our free cash flow guidance to approximately 2.65 billion, an increase of 200 million from a combination of operating performance and tax reform. Cash tax benefits from tax reform will continue and also drive an increased free cash flow outlook in 2026. At a segment level, IMS revenue guidance increased 100 million, reflecting strong performance in the ISR sector. Operating margin is now expected in the 12% range up from the high 11% through improved program performance and LHX NEXT savings. We are increasing our revenue guidance for SAS by 100 million, reflecting an improved outlook in space. Operating margin is expected to remain in the low 12% range. And we are reaffirming guidance for CS and AR. Given our strong performance and this generational opportunity in defense spending growth that we are uniquely positioned to capture, we are also updating our 2026 outlook. On investor day in 2023, we set our financial framework at 23 billion in revenue, 16% segment operating margin, and 2.8 billion in free cash flow. We continue to expect 23 billion in revenue for 2026, reflecting 6% growth year over year. And we previously updated that we expect margin in the low 16% range. Now, while investing in key locations like Indiana, Arkansas, Virginia, and Florida to fuel future growth from Golden Dome and rocket motor capacity increases and staying aligned with our customers' mission critical needs, we are also raising our 2026 free cash flow guidance to 3 billion, a 13% increase year over year with even stronger free cash flow per share. With that, I will turn it back to Chris.

Before we turn to questions, I want to take a step back and frame where we've been and where we're going. It's clear how far we've come. Over the past several years, we've reshaped the company through internal investments, strategic acquisitions and divestitures, building a portfolio squarely focused on national security. We've also deepened partnerships across the government and industry to accelerate innovation and mission outcomes. Our trusted disruptor strategy and culture is delivering and has positioned us at the right place at the right time. We're uniquely aligned to the national security priorities of the U.S. and its allies, whether that's resilient communications, space superiority, or replenishing and modernizing critical missile systems. The awards and milestones this quarter reflect that alignment and will meaningfully contribute to growth in the years ahead. We've also crossed an important operational inflection point. With strong top-line momentum and expanding margins, we're executing well across a diverse portfolio, delivering strong performance even as we take on increasingly complex missions. Looking ahead, we expect consistent top-line growth with industry-leading margins and increasing free cash flow per share. From 2023 through 2026, our free cash flow per share will have a CAGR of 15%. We are well positioned for sustained profitable growth over the long term and will remain disciplined in our capital allocation. You can expect more details on our forward outlook at our next investor day to be scheduled in Q1 of 2026. Sylvie, let's go to the Q&A, please.

Thank you, sir. We will now be conducting a question and answer session. Please limit to one question per person. If you'd like to ask a question, please press star one on your telephone keypad and a confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove yourself from the queue. And if you have any additional questions, please press star one again to get back in the queue. For participants that are using speaker equipment, it may be necessary to pick up your handsets before pressing the star key. One moment, please, while we poll for questions. Thank you. And our first question today comes from Richard Saffran at Seaport Research Partner. Please proceed with your question.

Thanks, Chris, Ken, Dan. Good morning. I have a two-part LHX Next question. First, I thought you might explain the comment and release about monetizing legacy and life assets. I assume that's part of LHX Next and footprint reductions, but I thought maybe you'd correct me if I'm wrong there. Second, given your opening remarks from both of you, could you discuss a bit more about how much runway you have left on LHX Next cost reductions? I'm wondering if footprint reductions also are going to continue to be part of that.

Thanks. Yeah, thanks for the question, Rich. Let me focus on the asset monetization first and the footprint aspect of the question. You know, from my perspective, I think this is really about, you know, looking at our portfolio, where we are investing and where we see kind of the areas of strategic growth. And as we look at that, we do see, you know, a couple areas where some of the product lines don't necessarily align with the areas of growth that we're investing in and really focused on. And as we see that, we look to monetize those product lines. Think of it as, you know, taking future revenue and pulling it forward a little bit. So I think we've done, you know, a good job of that. And, you know, in terms of the footprint, you know, that's, I would say, you know, more of a tangential benefit. Certainly, you know, it's really about the strategy and the future growth. But as we exit this product line, it will create an opportunity for us to repurpose that footprint into areas that are growing and aligned with the strategy. On the next question, on LHX look, we'll continue to drive cost savings. We'll continue to drive facility consolidations and really focus on that. It'll become more of kind of our ongoing effort of, you know, operational improvement, what we call E3. But, you know, the LHX Next program from a 25.

And I'll just add on that. Yeah, Rich, just on the product line, it's really all about management focus. And I want the team focused on things that are going to move the needle for our customers and shareholders. So these are really small immaterial product lines that have better owners, in our opinion. So we effectively are monetizing today with what have been immaterial amounts of revenue, OI, and cash over the next several years. And agree with Ken on LHX Next. We'll hit the 1.4 or greater cost savings by the end of the year. We'll declare victory and the program and make it part of our normal business cadence, all while transitioning to the transformation of the company and having more of a digital ecosystem to get timely, accurate data to make decisions. So that's how I see the future played out on LHX Next.

Thanks to both of you. Appreciate it.

Next question is from Ron Epstein at Bank of America. Please proceed.

Yeah, hey, good morning, guys. Thanks. Just wanted to follow up with a question on the international opportunities that you both referred to in your prepared remarks. Given the increased spend spending in Europe, what impact do you think that'll have for you guys? What opportunities are out there? You know, it's kind of outsiders looking in. Can we kind of keep an eye on?

Yeah, thanks, Ron. We're seeing solid growth internationally. You know, we've always had about 20% of our revenue from our international customers in Europe. As I mentioned in my prepared comments, we're seeing a lot of opportunities really focused on the telecommunications, the software defined radios in countries, you know, that historically went to their indigenous providers. So the importance of interoperability and resilience and security is making a huge difference. You know, our business jets, missionized business jets, we have opportunities in the Far East and also in Europe as well. So that continues to be a growth market for us. And then of course the Mideast, whether we're a prime, a sub, or a merchant supplier, we do get the benefits, especially with the missile production as a subcontractor going to the Mideast and other parts of the world. So we feel very confident about our international growth and I think it's reflected in today's results.

And then, Chris, if I may as a follow on, do you think you need a bigger footprint in Europe? I mean, one of the things that we've heard discussed a lot from the European allies is just they want kind of more sovereignty. I mean, how do you think about that strategically for the company?

Yeah, well, I mean, our strategy, Ron, has been to partner and bring the best of our technology to our customers. So while we have a footprint of employees and infrastructure in certain countries, the partnership model seems to work best. And we've had great success working with other defense and technology companies around the globe. And again, we're not adverse to subcontracting to them, but more times than not, we're the prime and we put them on our team. So that's how it works. In the Mideast, you know, we have a little more of a presence because they like to have the technology transfer in the footprint, but we're agile and we kind of read country by country what needs to be done. If you recall a few years ago, we opened a factory in Poland for that very reason. So we're happy with the strategy so far, but can adjust if needed.

Thank you. Next question will be from David Strauss at Barclays. Please proceed.

Thanks, Maureen. Thanks for taking the question. Chris, the growth and margin improvement that you're predicting for forecasting for 2026, could you kind of rank by segment where you would expect to see the most growth kind of highest to lowest and then seeing from a margin improvement standpoint? Thanks.

Yeah, David, if can I can, I'll take that question. From a, you know, from a growth perspective, I think, you know, we're seeing growth across all four segments. I think we expect that to continue largely. But if you wanted to rank them, you know, right now with the demand we're seeing at Aerojet Rocketdyne, especially around solid rocket motor production and some of the contracts that Chris mentioned that we've signed for space propulsion, Aerojet likely would be the fastest grower. As we look at opportunities like, you know, Golden Dome and SDA Tronch 3 that we've responded to an RFP for, certainly SAS will be a strong grower. CS as it looks at continued international opportunities and then IMS as well. So, you know, maybe that's the way to think about it. But solid growth opportunities across all four segments. In terms of margin improvement, you know, I think really it comes down to continuing to integrate the benefits of the LHX NEXT program as well as solid program performance, you know, burning down risk on programs, just, you know, just performing well. And I think we're, you know, that we're on a good rhythm in terms of delivery. I think it's having a couple benefits. You know, number one, I think it's really given the customer confidence and, you know, providing new awards and new opportunities for L3Harris. And you're seeing that in the over $8 billion of awards in the quarter as well as the solid book the bill. But it's also, you know, yielding itself in terms of good margin outcomes. So kind of a win-win. And we expect that to continue into 26 with, you know, the low 16% margin rate.

Yeah, and the, David, the commercial business model is a big contributor to our industry leading margins. And each and every segment is looking in conjunction with the DOD's desire to go faster at more and more commercial acquisition models. So, you know, I think it's going to be a matter of which segment, which programs we can transition to more of a commercial model quicker. And that should drive the higher margin sooner. So I think it was December 23, we said each of the segments would grow the margins 100 basis points. We've either achieved that or track tracking to that. So very proud of the team to get over 16%. So quickly.

Thank you. Next question will be from Miles Walton at Wolfs Research. Please proceed.

Thanks. Good morning. Chris, how quickly can you get the HBTSS constellation contract under contract? And does that become revenue in 25? And then for trunche three, I think there's an October decision for that outcome. Is your 26 confidence hinge on winning that? Or does the 26 sales guidance, you know, you have confidence even without winning trunche three? Thanks.

Yeah, thanks. Thanks, Miles. On HBTSS, as you know, the general was just confirmed. You know, he's talking about doing a 60 day study to refine the architecture. So, you know, we'll await an RFI or an RFP to see how quickly they're going to move. I think given the fact that this was the only program highlighted in the executive order, we'd be hopeful that we could get something under contract by the end of the year. And maybe that contributes a little bit of the revenue for 25 and clearly a fair amount in 26. T3, you know, it's hard to pull out one particular program and we've managed more of a portfolio. But clearly, we're going to make our 2026 framework. We're assuming we're going to win T3. If we don't, we'll still find a way to get to 2026 framework. We are proud of the fact that we've had a couple years of meeting our commitments one way or another. So, we managed the portfolio. And as you said, the proposal's been submitted. We're waiting for an October award. There'll be three winners, I think, based on our performance, based on our cost, based on the customer's confidence in us being able to deliver on time. I'd be disappointed if we don't win that.

Thank you. Next question will be from Noah Popadak at Goldman Sachs. Please proceed.

Hey, good morning,

everyone. Good morning.

I wonder if given the strength in the bookings in the quarter, I wondered, Chris and Ken, if you could talk about how you expect bookings to trend through the rest of the year. I know, you know, kind of to the prior question and some others, there's maybe some binary-ish things in there. But just curious to hear you talk through it. And then I guess, you know, given the bookings in the quarter and the last year or two, and the Golden Dome opportunity, is it at least in the scenario analysis that the growth rate breaks out from the 4% to 6% that you kind of have been talking about for this year, and that's implied by the 23% next year? You know, it seemed like the Golden Dome opportunity could be an accelerant to that. Thanks.

Yeah, I'll go first, and then ask Ken to add a little more. Yeah, clearly, there's a ton of opportunities. You know, we try to secure as much business as we can as quickly as we can. 1.5 is a record. I think that'll be hard to repeat in Q3 and Q4, but we have pretty good visibility and hope to be well over one in both of those quarters. And single large awards like T3 or HBTSS, which could be multi-billion dollars, some of the missionization on business jets in the Mideast or the Far East, again, billions of dollars of awards can move that pretty quickly. And, you know, to the extent you deliver on time, which has been our focus, it does help with the revenue recognition. So, yeah, I would hope we could potentially do more than four to six. I don't know if I'd call it a breakout, but we're highly motivated. And as I said, the customer wants to reward and allocate work to companies that are delivering, and we're delivering, and I expect our backlog to grow by the end of the year, and also expect that our revenue will look strong for the foreseeable future.

Ken? Yep, I agree with what Chris said. And from a book to bill or awards and back log perspective, Noah, I think we're looking at a solid second half from an awards perspective. Awards are probably the hardest thing to predict in terms of timing, but certainly in terms of the number of opportunities we see in front of us. I think we can have a solid book to bill in the second half of the year. And as Chris mentioned, we should have a growing backlog through to the end of 2025. So, I feel really good about our position. And I agree with Chris. I think looking at the opportunities in front of us, it does give us, again, confidence to that 23 billion. No single order or single award is key to hitting that number, given the diversity of our portfolio. But I think if a couple of things go in the right direction, we certainly got the opportunity for driving some outsize growth, not just in 26, but as we look forward for some period of time.

Thank you. Next question will be from Douglas Harnett at Bernstein. Please proceed.

Good morning. Thank you. On the bookings, the 8.3 billion, can you give us a picture of what the major pieces of that were and how that breaks down by segment, given it was a big number this quarter?

Yeah, good morning. Good morning, Doug. I can tell you each and every segment was over 1.0. Aerojet, almost 2X book to bill. SAS, close behind. And IMS and communications were kind of in that 1.1 to 1.3 range. So, it all added up to a 1.53 book to bill. I'll ask Ken to maybe highlight a few of the big wins, but it was not one particular item. It was just across all 14 sectors. Yeah, you can go through the details.

Yeah, thanks, Chris. I appreciate it. And, Doug, I would say, again, strong book to bill across all the segments. If you look at Aerojet with 2.0 book to bill, solid orders in both the missile solutions business as well as space propulsion. At SAS, really strong orders in mission networks and the work it does with FAA and solid positioning for growth in airborne combat systems sector. IMS had strong orders at ISR as well as maritime. And then CS, again, we continue to see strong orders from an international perspective. I think Chris mentioned a couple, Germany and Czech Republic. So, really solid performance across the board. And I think maybe more importantly, all of those orders are very aligned to the areas that we're investing in and driving the strategy towards from a growth perspective.

Thank you. Next question will be from Robert Stallard at Vertical Research. Please proceed.

Thanks so much. Good morning. Hey, Rob. Ken and Chris, just wanted to follow up on Chris's comments earlier about the customer wanted to go faster and all that. Is this coming with an embracement of risk that's appropriate? I mean, are you signing up to contracts that are perhaps a little bit racier than you perhaps would like if things weren't going so fast?

Yeah, thanks, Rob. I can assure you we're not signing up to things that are riskier or racier, if that's what you said. No, there's a desire to go fast for the customer. A lot of these awards are follow-on awards, change orders to existing contracts. A lot of classified work in ISR and space this quarter. And it seems like the new administration with their great business background understands business maybe better than prior administrations. And we're receiving cost plus contracts where appropriate and fixed price contracts when we move into production. Not a lot of desire to lock in long-term fixed priced options for development programs that haven't been developed. So I find them so far to be quite reasonable and kind of enjoyable to work with. So somewhat refreshing in my experience.

Yeah, I'll just add from a contracts perspective, Rob. Moving faster doesn't necessarily mean taking more risk. I think the business deals that we're working on, we work closely with the customer. We've got a great contracts team that I think negotiates good deals for us and makes sure that we're thinking about the risk and making sure we sign up for the right statement of work. So I think all that is moving well on that front. And I think this is really something that L3 Harris is built for. I mean, we're able to manage risk, move fast. I think we've got more agility. We've got smaller teams that look at these things, really make sure they align with the strategy, they align with our profitable growth plans. Certainly we take risk in certain areas and we work to offset that with operational performance and other parts of the portfolio. But I think it's all hanging together really nicely and I think our risk profile as I look forward is appropriate.

Yeah, a lot of this comes from the basis of estimate and we've now, after several years since the merger of L3 and Harris, have been able to build up some data to do a little better job with our parametric modeling and such and using AI and our digital backbone. So we're getting better and better data to base our bids on. So if you get the basis of estimate right, whether it's the hours or the subcontracts, it's going to make it easier to perform and make money. And that's what we're doing. We're submitting bids based on what it costs and in some cases, or a lot of cases, we're bidding bad deals knowingly just to grow market share.

Thank you. Next question will be from Sheila at Jeffries. Please proceed.

Good morning, Chris and Ken. Chris, I really appreciate the color around the strategies. Any way you could quantify maybe just specifically TDL and Aerojet hitting their stride with Aerojet having the highest revenue quarter, how does that contribute or accelerate 26 growth and on Aerojet specifically just increases in production? How are you thinking about the business over the next five years and the biggest growth drivers for Aerojet?

All right. Well, thank you, Sheila. I'll say, you know, both these acquisitions that we made in 2023, TDL and Aerojet, are exceeding the business model that we built to approve and get our board of directors to approve these acquisitions. I'll give a little insight on TDL. I'll ask Ken to talk about Aerojet Rocket Eye. But on TDL, which you don't see the visibility, but it's within the CS segment, you know, since acquiring them in January of 2023, the revenue has been upper single digits. So both accretive to CS and accretive to L3 Harris, the margins as a result of the cost energies and consolidating the facilities in Salt Lake City, streamlining and improving the roll throughput yield and the production capability are almost at the CS segment level. So very high margins, especially on the commercial business model again. And the cash has been very strong, not even considering some of the tax benefits as a result of the way the transaction was modeled. So, you know, as we go into year two and a half very pleased with TDL. And again, part of that upside has been our success in getting LYNC 16 into space, which had never been done before. And I think that's huge opportunities as these various comms and transport layers under Golden Dome evolve in the years ahead. Ken, you want to talk about Aerojet Rocket Eye?

Yeah, thanks, Chris. Yeah, from an Aerojet Rocket Eye perspective, Sheila, I would say, um, you know, there is just a significant amount of opportunity and it does take investment. This is a long cycle kind of capital intensive business. I mentioned that Aerojet Rocket Dye should be the fastest grower as we look, you know, kind of 26 and beyond. Missile Solutions is certainly a big part of that. And if you look at where we're investing, you know, we were, we did work with government to get some Defense Procurement Act funding for programs like Javelin, Stinger, and a couple others. So, we see growth in the near term, certainly in the tactical motor side from an interceptor perspective, you know, we're on PAC 3 standard missile on FAD, and we're seeing growth and increased demand on the interceptor level. And some of that could potentially accelerate as those are a part of the Golden Dome opportunity. And then long term, we've been investing, we've talked about large solid rocket motors, supporting programs like Sentinel, some classified programs, Next Generation Interceptor, as well as Glidephase Interceptor, which is technically a medium-sized motor. But I would throw it in there, as well as the business we have supporting Missile Defense Agency for targets we think would be a grower related to Golden Dome and testing some of those new systems. So, even within AirJet Rocketdyne, it's a diverse portfolio. I think they're positioned very well across key and what are important missile programs, and certainly those that are seeing increasing demand from the customer, and we expect to drive growth for, you know, decade or plus in some regards.

Yeah, so we're going to try to get to $5 billion of revenue by the end of the decade. That's our aspirational goal. I think we have pretty good visibility into that. I will say when I meet with the Primes and the end customers, there's nobody disputes that we have by far the best technology in this market, and I think that's been a differentiator. You heard me say we're on pretty much every interceptor in the U.S., whether it's in development or in production. The large solid rocket motors, I mean, we're pretty much have each and every one of those in our portfolio already. So, huge, huge opportunities. Again, at the end of the day, it's about delivery and scale. You know, you didn't ask about the new entrance. We continue to meet with new entrants. We look to partner. We welcome the competition, but when you look at the investments we're making, that the Primes are making and the government's making, you know, in less than two years, we're going to have the facilities, the equipment to ramp up, and it's going to take others half a decade or more to get there. So, feel very, very confident that this was a good acquisition. We have a great team running it and a highly motivated workforce and couldn't be more proud of what we've done and what we're going to do in the future.

Thank you. Next question will be from Gotham Kana at TD Cowan. Please proceed.

Yes. Good morning and great results.

Thank you.

I have a two-part question. In the President's budget request, you may have seen, you know, the military radio line items were a little bit softer in 26. Likewise, armed overwatch and some others. I wanted to get your perspective on, you know, what the growth rate might be beyond 26 for tactical radios and some of those other areas with the backfill from foreign or otherwise. If you could just give us some framework to think about that.

Yeah, great, great question. You know, we, so we'll start with the radios. I'll let Ken talk about armed overwatch, but first of all, is the 26 PBR. So this is the first step of a multiple step process. So we noticed what the cuts in the HMS and the COPS line, those two line items, but there's quite a long way to go through the process to see where that ends up. And historically, you know, customers weigh in, members of Congress weigh in, and ultimately the end users weigh in. So we'll see how that plays out. But when you look at the actual numbers, you know, we're comparing two line items known as HMS and COPS to the same two in 26, but there was a third line item added called NextGen Command and Control or NGC2. So I kind of look at those three as the telecom and the radio line items. And those are on a combined basis, several hundred million more than 2025. So the question is what is in NGC2? And as we've looked at it, there is clearly a transport layer where we believe our software defined radios and our network capability and architecture capability can meet those needs and continue with the modernization. So I think a lot of the modernization that needs to continue, we're just talking U.S. domestic, is embedded within that NGC2 and our teams are looking at how best to proceed. So we'll monitor this situation, but we'll let you know as that plays out. I don't see this as being a significant headwind based on our performance and based on our capability. And of course, internationally we've already covered, we have great opportunities there as well. So in total, tactical comms, radios, or T-coms sector continue to see growth for the foreseeable future. I haven't even mentioned the waveforms and some of the other product sales that we have with much, much higher margins. So you

want to talk about armed Overwatch? Sure. Yep, thanks, Scott. From an armed Overwatch perspective, I would say we did see that there's a dip in quantities in, I think it's 26. No concerns from our perspective. And I think a couple things, it's a long cycle program. It doesn't impact our production flow. We've got plenty of aircraft in order, and I think we've got a good delivery cadence on that. And maybe more importantly, we're seeing a fair amount of international opportunity for armed Overwatch that we'll look to drive some awards for. And certainly if you think about the overall ISR business and as it rolls up to IMS, nothing in that profile from a funding perspective that would impact our ability for growth in the business. So we're tracking it, looking to fill it in with some international opportunity.

Thank you. Next question will be from Seth Seifman at JPMorgan. Please proceed.

Thanks very much, Anna. Good morning and nice results. I wanted to ask, maybe if you could set us on where things stand in the mission networks piece of the business within SAS. How big is that now? And it's something that kind of thought of as maybe rolling off over time, but it seems like there's opportunity in the near term given FAA demand. And maybe the way that the mission network is going to be built is going to be a little bit more complicated. But I guess how should we think about that piece of the portfolio?

Yeah, thanks Seth and good morning. And thanks for the kind words. We'll pass it on to the team. Yeah, we don't talk much about the mission networks business. I mentioned a few things in my prepared remarks. Our specialty here is really on the telecommunications, the telecommunications infrastructure, and specifically the migration from the older copper wire to fiber that you might have heard Secretary Duffy talk about. So we were able to successfully upgrade the Newark airport, as I mentioned, which got a lot of press over the last several months. But there's literally dozens of other opportunities and literally thousands of sites that need to transition from, I'll just say, older technology to newer technology. We're kind of in the sweet spot of doing that. So you've heard about the need for a brand new air traffic control system. We will not at this point have any interest in being the prime integrator or try to manage that whole portfolio. I think there's probably other companies that are better suited for that. We want to stay in our sweet spot, which is really the telecom infrastructure, the broadcast services, the data integration and data services. So all in, I think this sector is right around a billion dollars or so, isn't it? With good margins. And we would expect this to continue to grow. And it's part of our national security infrastructure supporting the US government. So a good business and a good business. And we're clearly more upside today than maybe a year or two ago. So the team really came through and did a great job.

Thank you. Next question will be from Scott Micus at Amelius Research. Please proceed.

Morning, Chris and Ben. Nice results. Chris, I wanted to ask about the Wolfpack announcement that you guys came out with. You're effectively going to be competing with Lockheed and Raytheon for two of Aerojet's largest customers. I'm just wondering when you initially acquired Aerojet, was that something you decided to do more recently or has it been in the works for a long time? And in the long term, what do you see as the revenue opportunity for Wolfpack, both domestically and internationally?

All right. Thanks, Scott. I wasn't sure I was going to get a Wolfpack question today. So I'm glad you keep abreast of our announcements. Yeah, this is something that we've been working on well before Aerojet, Rocketdyne acquisition. It's a unique transformational capability. Launch effects is something that each of the DOD service branches need. And we think we have a unique offering that we've been developing. One of these will actually be a kinetic strike. And the other will be more of an EDW, kind of falls in that attributable market that everybody keeps talking about. And I think these are quite affordable relative to other products that are out there. So, you know, we kind of have to start small and build up there. We do have a hot production line. We've had demos, well over 40 flights that have been tested. And there's a lot of interest here domestically, whether we can export or not to be determined. And, you know, this asset, depending which variation you get, obviously goes inside larger platforms. So, you know, we'll try to get a couple hundred million here in the next several years and see where it goes from there. But pretty innovative, pretty creative opportunity. And of course, with Aerojet Rocketdyne, it just gives us more and more synergy, although these particular assets don't have solid rocket motors in them. Probably all I can say from a technical standpoint.

That's Sylvie. We'll take the last question.

Certainly, sir. And the last question will be from Jason Gursky at Citi. Please proceed.

Hey, good morning, everybody. Can, just a quick clarification question for you and then Chris, just a bigger picture one, if you don't mind. On the clarification one, has there been any change, Ken, to your expectations on how much of the LHX next savings you'll pass on versus what gets captured by the customer? I think you've commented on that ratio in the past. And then, Chris, I was wondering if you could just spend a little bit more time on space. I know there's been quite a few questions on it today already. So, I appreciate the color there. But I'm just kind of curious. The overall demand environment for space and any kinds of new projects that you might see or new technologies, programs that you see on the horizon, either here domestically or maybe even over in Europe and whether European capabilities are going to be something that they're going to spend money on in the space domain here and whether companies like LHX you think might play a role in increased spending in Europe.

Thanks. Jason, on your first question in terms of LHX next, no change of any significance from our expectation around the margin opportunity. The program goes out and identifies cost savings opportunities and really makes sure that we focus on kind of the run rate opportunities that will impact the longer-term business. We work to generate those savings and certainly flow it through our contract mix. We do expect roughly 30 to 40 percent of that to generate margin opportunity for us. And the remainder will be passed back to the customer through lower cost and essentially providing some benefit to the customer as well as our competitive positioning for winning new work. So no change to the model. Different types of cost savings have different profiles to them. But overall, at a portfolio level, we still expect roughly about 30 to 40 percent. And Chris?

Yeah, Jason, great question on space. We've highlighted this in the past as kind of a key part of our trusted disruptive strategy how we've moved up the food chain. We don't really talk a whole lot about some of the things we do for NASA and NOAA, especially on the weather satellites. And weather satellites have a significant military application in addition to all of us looking at our apps and checking the weather on a daily basis. So we actually see some international opportunities using our weather satellite technology, which is the same technology we used to innovate into the missile tracking, missile warning. So there's a lot of opportunities for us. We continue to stick with our strategy. In a lot of cases, we're the prime now, which we weren't historically. We still sub on some of these exquisite geo synchronous satellites focused on our great antenna strategy or technology. And we're also a merchant supplier, even on some of these transport using Link 16 and some other technologies that we've talked about. So a lot of growth potential. I'll say since the new administration, I think things slowed down. You see that across the industry for the first six months as the new administration comes in place, as we wait for the confirmation, as we figure out what's going to customers that procure a satellite. So I think we're going to pick up some momentum here in the third and fourth quarter as the architectures are finalized. But we pretty much play in every orbital plane and every size and as a prime, a sub and a merchant supplier. So we're looking for good things out of space. And again, we're performing, we're delivering, and that's going to lead to more business. So as we close today's call, I want to thank my leadership team and employees for their continued focus, agility and commitment to the mission. More than 90% of my executive leadership team is new to the company, or has taken on expanded roles in the last three years. The team brings a strong mix of defense industry experience, operational expertise and commitment to advancing national security priorities by investing in talent, technology, and long term growth. We are fearless. We have the courage to defy the status quo and challenge convention. We don't follow trends, we set them, and we're forging original paths that advance mission success. The progress we're making is a direct result of their teamwork, their focus, and their commitment. So thank you all for joining us today, and we look forward to connecting with many of you in the weeks ahead. Thank you.

Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.