L3Harris Technologies, Inc.

Greetings. Welcome to the L3Harris Technologies second quarter 2026 earnings conference call. At this time, 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, Tony Calderon, Vice President, Investor Relations and Corporate Development. Thank you, Tony. You may now begin.

Thank you, Jake, and good evening, everyone. Joining me today are Chairman and CEO Chris Kubasik and Chief Financial Officer Ken Sharp. After the market closed today, we published our second quarter earnings release detailing our financial results and updated 2026 guidance and provided a supplemental earnings presentation on our website. Before we begin, please note that our discussion will include forward-looking statements subject to risks, assumptions, and uncertainties that could cause actual results to differ materially. We will discuss GAAP results alongside non-GAAP financial measures of organic revenue, segment operating income, and free cash flow, which are reconciled to GAAP measures in the earnings release. For more information, please refer to our earnings release and FTP file. With that, let me turn it over

Thanks, Tony, and welcome to our call. Before Ken discusses the numbers, I'd like to step back and share some context to frame this quarter's performance within our multi-year strategy. Several years ago, we embarked on the strategy to become the trusted disruptor. We saw an opportunity to focus on national security here and abroad in a way that had not been done before. Today, security threats are growing in volume, intensity, and sophistication. Congress, the Pentagon, our warfighters, and our citizens need an industrial base on a wartime footing, ready to invest and respond quickly, reliably, and at scale. Our customers need partners they can trust and depend on, and I believe L3Harris is that partner. Today's results are not just a one-off strong quarter. It's the result of leadership, teamwork, and a dedicated workforce delivering on our customers' mission. These results build on the momentum that began in late 2023. We are running L3Harris for long-term value creation. We are taking deliberate, disciplined risks to enter markets we haven't participated in before and to gain share in attractive growth domains. In missile warning and missile tracking, we have been selected by the U.S. Space Force for the AMDT-3 satellite constellation. We are the only company to be awarded all five contracts related to missile tracking. This award reinforces that the customer trusts us to deliver high-quality, resilient, integrated spacecraft that are critical for national security. Also in space, we see a $9 billion pipeline over the next several years across missile warning, missile defense, and several classified missions. Since the fourth quarter, we've secured $2.4 billion in new contracts validating our trusted disruptor strategy is working. Our early investments in capacity, along with bidding as a prime, are paying off. The programs we win today establish enduring franchises that will serve our customers and L3Harris over the long term. As a reminder, the satellites will be replenished to keep the Constellations operational. Within ISR, we are progressing on a multi-year, Missionization Business Jet Pipeline. During the quarter, we were awarded the first phase of the next two U.S. Air Force electronic attack missionized business jets. Internationally, we've been awarded $3 billion of airborne early warning and control programs since the fourth quarter. Our pipeline includes $10 billion of opportunities across the Middle East, Asia Pacific, and Europe. We offer the customers the ability to have more affordable, interoperable, and superior sensing solutions while being able to field capabilities faster. Three years ago, we acquired Aerojet at full price, recognizing that while the business needed work, we were not simply buying a P&L. We were securing a strategic position and a critical entry point into a business we believed had significant value and was poised for significant growth. We saw that opportunity and acted decisively. That was not a popular view at the time, and the questions you raised were fair about the multiple, the integration risk, and our ability to execute, and whether we could credibly become a major player in this business. We do not ask our investors to take our vision on faith, and I'm not asking for that today. Three years later, let me walk you through what has changed and how we executed to validate Our investment thesis. We transformed and turned the operation around. We integrated ahead of plan and then combined it with complimentary L3Harris missile technologies, creating a purpose-built missile solutions business, spanning propulsion, seekers, antennas, fuses, advanced effects, and deep space launch systems. We didn't simply acquire a propulsion company. We built a far broader and more differentiated, one-of-a-kind missile technology business. These changes position us to expand into adjacencies and support our customers across the full spectrum of missile systems. More important than the portfolio transformation is the operational transformation. The business we operate today bears little resemblance to the one we acquired three years ago. We have all new leadership. We introduced operating disciplines, accountability, manufacturing rigor, execution standards, automation, and new technologies that have fundamentally changed how the business operates and performs. From the day we closed the acquisition, we decided to invest in the business, pivoting the focus to missiles and not reacting, but anticipating the market. We increased our investments in R&D and CapEx by a factor of 10. The leadership team and the workforce have done a great job bringing a sense of urgency to the missiles operations, including working multiple shifts. And as a result, deliveries are up over 60%, eliminating substantially all delinquent deliveries since the acquisition. Streamlining production has been a priority, and we have improved operational efficiency by 22% while we continue to prioritize our workforce's safety and health. Our customers have increased confidence in our ability to deliver, which is why the Department of War made a $1 billion investment. That financial investment was not only a vote of confidence by the Department of War, but it was also important to us, as it was a strong signal to accelerate our investment plans by 12 to 18 months. We are investing in facilities to meet accelerating demand for missiles and interceptors. We're also investing in new technologies Advanced Automation Production Techniques, and AI across both existing and new facilities. As we expand production capacity by almost 1 million square feet, the new missile factories will be among the most modern in the world. The new GMLRS factory, which we have named the Arsenal of Freedom Building, is coming online next month. This factory is highly automated with robotics, moving motors from station to station, along with automated mixing, casting, curing, x-ray inspection cells, all with AI overlaid, improving yields and reducing cost. The workforce has been trained in these new tools and is excited about our ramp up. Our new highly automated GMLRS operation will allow us to more than double capacity while reducing manufacturing times by 50%. The conversations we're having in the Pentagon are no longer about whether we can deliver, but how many can we produce and how fast we can go. A complete turnaround from a year ago. Our strategic decision three years ago, alongside our operational turnaround, has put us on a clear path to success. Let me share an update on our missile business IPO. We have built an exceptionally strong, well-positioned franchise, and we are more confident than ever in the extraordinary value we are creating through continued execution and the acceleration of the business. Market conditions have evolved and do not reflect the tremendous value we are building. With capacity expansion underway and the momentum accelerating, we are poised to deliver even greater value as we ramp production to support our nation's urgent and critical needs for our missile solutions. The advanced signals are outstanding. We are actively negotiating more than $20 billion in new contracts, potentially tripling our backlog and positioning us for meaningful and sustained revenue and profit growth, both in the near term as well in the future.