Greetings, and welcome to the L3Harris Technologies First Quarter Calendar Year 2020 Earnings Call. It is now my pleasure to introduce your host Mr. Rajeev Lalwani, Vice President, Investor Relations. Thank you. You may begin.

Thank you, Jess. Good morning, everyone, and welcome to our first quarter calendar year 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 financial measures. Forward-looking statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please see the press release, the presentation, and our 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 as reflected in the 8-K filed yesterday. With that, Bill, I’ll turn it over to you.

Okay. Well, thank you, Rajeev, and good morning everyone. As we're all aware, the environment has changed considerably since our last update due to the global COVID-19 pandemic. Our top priority remains the safety and well-being of our employees while continuing to deliver the mission-essential products and services to our customers. And I will start by thanking all of our employees for their hard work and dedication through this crisis. While we have a resilient portfolio and customer base, and we're well-positioned, we're not immune to the effects of COVID-19. Despite the solid start to the year, we're trimming our outlook for revenue and earnings per share due principally to our commercial aerospace exposure and our recently completed divestiture, plus some anticipated softness in international and public safety and potential risks from supply chain disruption. We move quickly with cost and other actions to offset these headwinds, holding earnings per share within 2% of our prior guidance while increasing our margin outlook and maintaining free cash flow. Our core U.S. government business, which represents about 75% of revenue, is performing well and without significant challenges. Earlier today, we reported first-quarter results with non-GAAP earnings per share of $2.80, up 21% on 5% revenue growth. Company margins increased 170 basis points to 17.5%, and adjusted free cash flow was $533 million. Total company funded book-to-bill was 1.11 driving funded backlog up 3% versus the prior year. These results were ahead of our expectations. We're actively assessing and monitoring global developments and continue to use best practices to mitigate risks related to COVID-19. We've mandated work from home for those who can, implemented social distancing, and canceled all travel and external events. In our production facilities, we've staggered work shifts, redesigned stations, and implemented stringent cleaning protocols. As of today, all our facilities are up and running with limited disruptions reported to date. We continue to receive a great deal of support from our key customers, the DoD, the FAA, NAS, and others, and a large majority of our programs and facilities, as well as those of our suppliers, have been deemed essential to national security. The DoD has moved quickly to adjust the terms of progress payments to drive cash into the industrial base, which we have passed through to our small suppliers and started a dialogue with the industry on how to size and cover COVID-19 related costs. These measures, combined with potential tax-deferred benefits through the CARES Act, provide some risk mitigation for our company and supply chain. Looking at our credit profile, our balance sheet remains healthy, and we expect to have over $3.5 billion in liquidity in the form of cash on hand and revolver availability at the end of the quarter. Jay will discuss this in some more detail. In these uncertain times, we continue to execute well on the strategic priorities that we previously outlined, which is helping us deal with the crisis at hand while at the same time delivering long-term value for our shareholders. First, we continue to make great progress on integration despite the environment. Our team delivered $55 million of net synergies in Q1 from improvements in benefits in overhead costs, and we now expect to achieve $165 million of incremental net savings in 2020, up versus our previous expectation of $115 million, as we accelerate savings and manage through the pandemic. And there is no change in achieving $300 million in cumulative net savings or about $500 million gross in 2021, which, as we've announced before, is about one year ahead of schedule. Second, we continue to drive a culture of operational excellence deep into the company to improve quality and productivity and expand margins. This was evident in our first quarter results where we built upon last year's performance and delivered E3 savings on top of synergies offsetting mix headwinds. For the year, the combination of cost synergies and E3 savings allows us to increase full-year margin by 25 basis points to 17.5% at the midpoint despite the cost absorption challenge from revenue headwinds and the expenses being incurred to fight the pandemic. And in our working capital, we continue on the improvement trajectory from the stub year with another two-day operational reduction since year-end and about 10 days operationally since the merger close, primarily from better inventory management. We believe we have the tools and proper focus to manage in the current environment, leaving the path of 50 days of working capital intact for 2020. Third is to invest in technology and innovation in anticipation of customer needs to grow revenue in the long run. And we expect to sustain our industry-leading spend on R&D despite the pandemic. The team is making terrific progress in improving the efficiency and effectiveness of our investments, creating room in our budget to support investment in the growing pipeline of revenue synergy opportunities. We have now submitted 41 revenue synergy proposals, up 18 from last quarter, with another 3 down selects out of 8 in the first quarter, primarily related to classified work in our Space and Aviation Systems segments. To date, we've been down selected on half of the 16 proposals awarded with orders booked in the tens of millions and a lifetime revenue potential of over $2 billion. Our fourth priority is reshaping the portfolio to focus on high margin, high growth, and technology-differentiated businesses. And this has not changed. So far, we've announced three transactions representing about 3% of revenue that will result in about a billion dollars in proceeds. Our airport security and automation business, the largest of these announcements, closed yesterday, with two smaller ones closing later this month and by mid-year, neither of which have a financing contingency. We're still targeting divestitures in the range of 8% to 10% of revenue, including the divestitures announced to date. And while the timing is now more fluid, we continue to have active discussions and are committed to maximizing value. And then finally, our fifth priority is to maximize cash flow to sustainably grow free cash flow per share. We're maintaining our adjusted free cash flow guide for 2020 at $2.6 billion to $2.7 billion and remain on track to achieve $3 billion in 2022. In the quarter, we generated over $500 million in free cash flow and returned $883 million to shareholders, including $700 million in buybacks and dividends, and dividends which were increased 13% in the quarter. For the year, we have now assumed $1.7 billion in share repurchases, including the proceeds from divestitures, which leaves us with plenty of liquidity given the environment. Moving to 2020 guidance, we expect organic revenue growth of 3% to 5% versus the prior 5% to 7%, as we consider risks related to our commercial aerospace, international, and public safety businesses due to the pandemic. On margins again, we are expanding guidance at the upper end and hovering the range to 17.4% to 17.6%, and we expect earnings per share of $11.15 to $11.55 with our free cash flow outlook unchanged. Overall, I'm proud of the dedication of L3Harris employees and their commitment to the mission at hand. And I'm confident in our ability to proactively manage risk so we can navigate these unprecedented times. So with that, let me turn over to Chris to provide an update on our operations and segment performance.

Okay. Thank you, Bill, and good morning everyone. I'll start with what we're doing from an operational standpoint to mitigate business risk due to COVID-19 then shift to our operating performance and results. The management team has taken measures to ensure the safety of our employees at our over 100 facilities. We've modified the workspace, especially in areas with high capacity such as our production floors in Rochester, New York, and Clifton, New Jersey, to either create space for individuals between workstations or to install partitions where social distancing is impossible. In addition, we've adjusted our work schedules by implementing multiple shifts or staggered shifts across our company, and at several of our locations that have higher risk, we have already implemented temperature checks and health screening before employees enter buildings. We provided PPE to employees, eliminated travel, and took other recommended precautions. The environment changes daily, and these safety protocols are mitigating risk and continue to limit disruption for our company. Turning to the supply chain, we’re managing risk daily with cross-company crisis teams established to assess and develop mitigation plans where needed. We've provided essential certification letters to all of our key suppliers globally and continue to engage in active dialogue and analysis to identify areas of vulnerability. With the recent changes by the DoD around its progress payment policy, we expect a slowdown in excess of $100 million of cash to help small businesses during these unprecedented times. As of today, we've advanced approximately $80 million and expect to exceed $100 million this week. Now turning to a quarterly segment results on Slide 6. Integrated Mission Systems grew revenue 1% from a ramp in our maritime business and classified programs, partially offset by timing and electro-optical and ISR following double-digit performance last year. Order momentum was broad-based with a funded book-to-bill above 1.0 in every IMS sector during the quarter resulting in an overall segment 1.37 for the quarter and 1.09 since the merger. One highlight was over $800 million and award activity from our leading position on the Big Safari program. First quarter operating income was up 22% and margin expanded 260 basis points to 14.7% from operational excellence and integration benefit. On Slide 7, Space & Airborne Systems revenue increased 7% in the quarter. The solid performance was driven by a production ramp and increased content on the F-35 platform, as well as growth on classified programs in Intel & Cyber. Funded book-to-bill was 1.16 for the quarter and about 1.0 since the merger. In the quarter, we secured our position as a prime mission integrator for our nation's space domain awareness program called Mosaic. This award is fully exercised and has the potential to reach $2 billion. Segment operating income was up 12% and margin expanded 70 basis points to 18.5% driven by strong program execution and integration benefits. On Slide 8, Communication Systems revenue was up 5% for the quarter as DoD tactical benefited from modernization demand that supported weekly deliveries of the two-channel multi-band radio increasing by 50% sequentially. Additionally, solid growth in broadband communications was partially offset by the timing of sales in international tactical, and prior year strength in public safety factored into the growth rate. Funded book-to-bill had a slight downshift to 0.8% in the quarter due to timing, so it's been solid at 1.03% since the merger. The awards included a $383 million sole source IDIQ from the U.S. Marines for next-generation HF radio systems as part of a multi-year modernization effort and an IDIQ for $500 million from the U.S. Space Force to provide secure and anti-jam satellite communications for the A3M program. Segment operating income was up 11% and margins expanded 120 basis points to 22.9% in the quarter from integration benefits and from strong operational performance, partially offset by the mix impact from the ramp and in the tactical radio modernization program. Lastly, on Slide 9, Aviation Systems revenue grew 11% in the quarter, driven by our defense businesses. Orders outpaced sales on the defense side leading to a funded segment book-to-bill of 1.05% for the quarter and 1.09% since the merger. Segment operating income was up 40% and margins expanded 300 basis points to 14.5% from improved operational efficiencies and integration benefits. Looking ahead, we expect the headwinds on the commercial side to pick up. As a result, we’ve taken a number of measures to improve the cost structure based on the market condition. The downturn has also been a triggering event that led to over $300 million of non-cash impairments for goodwill and other assets of the segment. We're committed to supporting our employees, our supply base, and our customers to ensure we get through this together.

Thank you, Chris. I'll begin with a quick recap of first-quarter results before discussing our revised outlook and liquidity position. Revenue was up 5%, and EBIT increased 17%, leading to EPS growth of 21% with solid margin expansion of 170 basis points to 17.5% primarily from integration savings and pension benefits. Free cash flow for the quarter was $533 million, and we ended the period with 62 days in working capital before purchase accounting adjustments. Overall, solid results in the face of a tough compare and its deteriorating backdrop. Okay. Let's now turn to the 2020 outlook on Slide 10, and I'll provide more color on our updated guidance. Starting with the top line, organic revenue is now expected to be up 3% to 5% versus our original guidance of up 5% to 7%. About two-thirds of this comes from resetting expectations for our commercial aerospace businesses due to COVID-19 and its impact on the macro environment. When adjusting for the sale of airport security and automation, the remaining business generated about $800 million in sales in 2019 tied to commercial aerospace through training and avionics equipment. Commercial training represents roughly 40% of the sales and includes the manufacturing of simulators and training of new pilots, as well as those of airlines. And within avionics, we manufacture and service a number of components including collision avoidance systems, transponders, as well as voice and data recorders. These businesses are tied to broader aviation trends, including air traffic, airline profitability, and OEM production rates, which are all under pressure. For instance, IATA has forecasted traffic to be down nearly 50% for the year. As a result, our guidance now reflects approximately $500 million in revenues or a reduction of about half of the sales for the remainder of the year when compared to 2019. In addition, we factored in pressures at our public safety radios business which in 2019 had $500 million in sales. This business is focused on state and local municipalities in North America, which are facing budget and operational constraints due to the pandemic, leading to an over 10% decline relative to our prior expectation of low single-digit growth. Finally, on the international front, which comprises roughly 20% of our sales, we are now assuming a more flattish outlook versus an increase in the low to mid-single digits previously. In contrast, we expect higher revenues from our DoD businesses including tactical radios and ISR. On the margin outlook, Bill talked about the acceleration of integration and productivity benefits that drive that 25 basis points increase in our margin guide of 17.5%, putting us at the upper end of the prior range. And that's net of approximately 30 basis points of headwinds associated with fixed cost absorption from volume declines that we've offset with expense reductions, bringing this down to our full-year EPS we now see $11.15 to $11.55, or $11.35 at the midpoint, down $0.20 as compared to our prior guide midpoint. The range is premised on 270 million shares inclusive of the $1.7 billion in share buybacks noted earlier and a 17% tax rate. Bridging EPS to our prior guide on Slide 12, we had $0.15 in headwinds from the timing of divestitures and repurchases, while the $0.52 in COVID-related headwinds are merely offset by incremental synergies and improved performance from midpoint to midpoint. Finally, a quick note on the profile of EPS for the remainder of the year, we expect the pandemic-related impact to be most notable in the second quarter with stronger growth anticipated in the second half. Moving to free cash flow, our guide up $2.6 billion to $2.7 billion is intact and so is the multi-year outlook. For this year, our cash flow is bolstered by accelerated synergies, federal stimulus, and cost takeout, which will offset the reduced revenues discussed earlier. In our working capital, we'll also look to manage the environment for a three-day goal of improvement in 2020 that remains in place as well. Moving over to liquidity, as Bill noted earlier, we remain in a strong position. We ended the first quarter with over $400 million of cash on hand, net of the April debt maturity and a $2 billion untapped credit revolver. We're looking ahead to the end of the second quarter, our liquidity should reach over $3.5 billion post-divestitures, which would include at least $1.5 billion in cash and full access to the revolver. Also, our net debt maturity of $650 million isn't due until early 2021, and our balance sheet is healthy at 2 times leverage. Now switching to the segment outlook, we've narrowed our Integrated Mission Systems revenue range to be up 5.5% to 7% versus the prior 5% to 7% guidance, driven primarily by strength in our ISR business. Segment operating margin is projected to be about 13.5% or a 25 basis point increase from the previous midpoint, reflecting performance to date and increased synergy benefits. Next, Space and Airborne systems also narrowed our revenue range to a 6% to 7.5% growth driven by modernization and sustainment on the F-35 platform in mission avionics. Segment operating margin is expected to be 18.75% and is unchanged at the midpoint. Communication Systems revenue is now expected to be up between 3.5% to 5% versus the prior guide of 6.5% to 8.5%. This reflects headwinds in our public safety business of about 1.5 points and a reduction of international volumes in tactical radios and in integrated vision. Segment operating margin is anticipated to be about 23.75%, that's up 100 basis points relative to the prior midpoint reflecting increased cost and integration benefits. Finally, in Aviation Systems, we're forecasting an organic revenue decline of 1% to 5% year-over-year, primarily from the factors I noted earlier in commercial aerospace. This points to reported revenues of approximately $3.4 billion to $3.6 billion for the year post-divestitures. On the commercial side, revenues are set to be down around 35% organically for the year, and for government-related businesses, which include mission networks, military training, and defense aviation products, they are expected to be up in the mid to high single digits. Segment operating margins are expected to be approximately 13.25%, down versus the prior guide by 75 basis points from the midpoint, due primarily to fixed cost absorption from the volume declines, partially offset by cost actions. The margin guide also accounts for the airport security and automation divestiture we closed yesterday. So to summarize and put it all together, overall pullback in our outlook, but one with a pandemic-related impacts that have been nearly offset by management actions with the remainder being the result of a more flexible approach to capital deployment in this environment. With that, I’ll ask the operator to open the line for questions.

We will now go to Carter Copeland with Melius Research. Please ask your question.

Just a quick clarification and a question I wondered, Jay, if you could give us a little bit more color on the cash bridge on the guidance for all the moving pieces with AS and tax and suppliers and progress payments and synergies. I think that would help everyone and just bigger picture, Bill or Chris, you know with respect to how the business, the combined business is evolving? I mean you highlighted the synergy opportunities, the revenue synergy opportunities you look at that opportunity pipeline. You look at what the business is going to look like in the wake of COVID-19. How does all of this influence your thoughts on portfolio and shaping and whatnot, any updated thoughts there would be great? Thanks.

Sure, Carter. Let me start with the free cash flow, as we mentioned earlier in the prepared remarks, we have the benefit of the progress payments going from 80% to 90%. That an excess of around $100 million that's being slowed down to the suppliers, and so net-net that's a very little impact. There is a benefit and stimulus related to taxes, which is helping us offset some of the other impacts across the business. But when you take a look at net income, that is moving, but as I mentioned in the prepared remarks as well, we've largely offset that. And so, with the benefit of the stimulus efforts, we're just holding that as a placeholder. We may have to go deeper into supplier payments. We may have to think about our pension contributions and things like that. But for the most part, we've held the working capital intact after three days. Net income is a little bit lower. We're getting benefits from the stimulus efforts and we're just kind of holding that as a placeholder for other things for later in the year.

And Carter, on your question on the long-term outlook, look, we're very pleased with the progress of the integration so far. The cost synergies are going very, very well. We're finding great opportunities and revenue opportunities, and it's a testament to the power of the combined portfolio as we laid out 18 months ago when we announced the merger. The areas that we could offer new mission sets to our customers and the COVID-19 notwithstanding, it's playing out as we had expected. We have a much more powerful competitive offering, and it's helping us quite substantially in mitigating some of the risks that we’re seeing coming through in small parts of the portfolio now through the pandemic. Now in the portfolio shaping, we've been at this now for 18 months, we've made some good progress here. We're about a third of the way through in terms of the revenue we anticipated, divesting. We had sized that for investors back in early February, that was pre-COVID. We keep looking at the portfolio; it's an ongoing process, but we're going to shape our decisions on what is in our portfolio based on long-term strategy, our ability to differentiate via technology, and our ability to grow and win in those segments, and that hasn't changed based on the pandemic. We continue to look at that. I don’t know, Chris, if you wanted to maybe augment with that.

Carter, I’ll just chime in that when I look at our new business opportunities and some of the things we're currently working on, I continue to believe our portfolio is well aligned with our customers' focus and desire. You hear a lot about multi-function systems which we are currently implementing in space. We are submitting white papers on ABMS, and of course, the Navy's coming out with an offering or an RFP on Spectral. So I think we're well aligned there on the capability front. And then the modular open system architecture, I think the F-35 is a good example of those capabilities. So I think it positions us well for the long-term.

Our next question comes from David Strauss of Barclays. Please proceed with your question.

So Bill, just wanted to ask on working capital progress. It doesn't sound like the progress payment change benefited you at all in Q1, but you got two days of sequential improvement I think you’d talked about that in Q1 you might have given back some of the upside that you saw in early collections in Q4. And so, maybe just comment on that, and I think from here you're only assuming about one day of additional working capital improvement through the rest of the year? Thanks.

Yes, David, that's all factual. Progress pay did really benefit us in the first quarter. It’s really just starting now in some ways. It's not a big part of our portfolio; it's only about 7% of our revenue, so you're not going to see big numbers. And as Jay and others and Chris pointed out, what we're receiving from the government through progress payment acceleration, we're flowing that out to the supplier base. So that net-net won't be a factor in the year. So we're making good progress. Two days sequentially, ten days operationally since the beginning of when we closed on the merger, I think it's just fantastic work that the team has done. A lot of it's coming out of inventory. We're seeing some opportunities elsewhere, but a lot of inventory coming out as we've been pointing out to investors for some time. And we're expecting maybe another day towards the balance of the year. There are some purchase accounting opportunities here, if you will, in the year. So we'll end this year below 60, probably in a 58-day range. And as we look out the next couple of years, again three to four days per year in 2021, three or four days in 2022. So, we see ourselves around 50 days of working capital by the time we get out into 2022 which, as you know, we’re still about five days higher than our peers were at the end of 2019 and about ten days higher than where Harris was before we closed on the transaction. So, we still see some good opportunities to continue to drive working capital performance beyond 2022.

Our next question comes from Robert Stallard of Vertical Research. Please proceed with your question.

On the adjustment to the aviation guidance for the year, I was wondering if you could elaborate on whether this has resulted from the order intake or the conversations with your customers, or whether it is your best estimate at this stage is relatively early days. And in relation to that, Chris, I was wondering if you could comment on what sort of flexibility you have to reallocate cost or capacity in the aerospace business to defense or elsewhere? Thank you.

So Rob, really on both. I mean, Jay went through the details I think pretty carefully in his script. So the business that was $800 million going down to $500 million, so down 40%. We talked about the components to be very clear. Training is about 40%, you know effectively what - and that we see being down 40%, 45% for the year. But in fact, what we’ve done is that we won't sell any new full flight simulators beyond Q1, so we sort of zero that out; that could be considered conservative. But that’s what we’ve assumed so far, it is through conversations with the airlines, with OEMs, it's really pretty detailed bottoms-up analysis that the team has done and really has worked on over the last four to six weeks. I think he's done a good job on that, 60% of the businesses in avionics we see that business down for the year around 30%. But it's got several components; there's a commercial OE and aftermarket component that obviously, that's going to be down substantially based on line rates that we're hearing from Airbus and Boeing based on IATA data on our RPK. There's a piece of it that provides military avionics. In other words, it provides avionics on a commercial platform that's military in use, that's relatively stable, which is why avionics isn't being hit quite as much as you might expect. So for the year, we've got quite a bit of the back end of the year in backlog we're watching this very, very carefully, watching order intake rate. And we think based on what we see today, we've sized it appropriately, again it's a very, very volatile environment and we're watching it very closely. Now let me maybe Chris talk about some of the shifts that are happening in the workforce.

Yes, good morning, Robert. We’ve taken the actions in commercial aviation to reduce the cost with the operating expense maybe down $20 million for the remainder of the year. And we've been pretty aggressive with reductions enforced and furloughs. But to your question specifically on the engineering front, as of today, we have over 50 engineers that were working on the avionics products that have been redeployed to DoD work. And now that we're all learning how to work remotely and a little more creatively, not many of those individuals needed to relocate. So, I think it's a good story relative to the engineering talent.

Our next question comes from Gautam Khanna with Cowen. Please proceed with your question.

Just a couple of questions. First on communications systems, I was wondering in the revised guidance, sort of what's the anticipated change in tactical RF relative to what the prior was? And at PSPC, you know how much of a lingering drag beyond 2020 do you anticipate being as a result of the recession?

So Gautam, let me touch on both of those pieces. So overall tactical, we had I think a pretty good start to the year; we're up 12%. The DoD was really strong, and international was down mid-teens and pretty close to what we had expected. It will be down that same range in the second quarter as well, recovering in the back half. You'll start to see a little softer year-over-year growth in DoD simply because of the tough compare. So now what we see international to be is roughly flat for the year before we thought it would be up low to mid-single digits, so call that 3%, so now about flat. You know in that flatness, we still see the APAC or Asia-Pacific region up low double digits Central Asia up significantly, you know, because of Afghanistan and some of the drawdown that’s happening there. You know, we still see Middle East Africa to be up low single digits, but that has come down from the last guidance. So Europe will be down mid-single digits. We know Western Europe is getting a little bit better, Eastern Europe still going to be down. And then that's really - those are really the bigger pieces here. Central America is roughly flat, and Canada is going to be down as we had expected in the year. So overall, we still see DoD being up, in fact a little bit better; up low to mid-teens around 14%. Now we know we see international being about flat. On Public Safety, we've had a very good run here, over the last six quarters to eight quarters, have been very, very strong. There's been growth like last year was close to 20% growth. Margins were coming up. We've got a great product line better quality, and really good execution. So we felt very good about that. This year, we were guiding to low single digits, which is in line with the LMR growth rate in North America. You know, as Jay pointed out, you know down more than 10 points from that, so call it down 10%, so it's about $60 million of revenue erosion. You know, we'll see that pretty prominently here in the second quarter and probably you'll see it'll about the same to the balance of the year; it's going to be a pretty tough back end of the year for Public Safety. I think beyond 2020, it depends on what happens to the economy, state and local tax revenues. Right now we're fighting in Q2 not just a revenue impact, but just the fact that you have the states and localities dealing with COVID and not able to work, doing an installed system that’s Public Safety. So we're hopeful we could get a little better in 2021, but it's too soon to say that, Gautam.

Now that’s a very helpful overview. And then just maybe I missed that the integration, Integrated Vision Systems, what’s going on there, in terms of decline, maybe I missed or misheard you in the opening remarks, but what sort of, what changed?

You’re talking about IMS, the Integrated Missions Systems business?

Yes. Is there any…

Oh, Integrated Vision, the night vision business?

Yes, Integrated Vision Systems, I’m sorry, it’s not IMS segment?

Yes. Integrated Vision Systems is performing well on the ENVG program. We're meeting our delivery schedules and looking forward to additional opportunities later in the year that are more domestically. I think the question is probably related to some of the opportunities we have in the Middle East. We talked about more conservatism in the Mideast. We have not had any cancellations. What we're seeing are delays or holdups. And a lot of that just ties to several factors. You know the export approval process, including congressional notification is a whole new process and it's all being done remotely and virtually. Some of our international customers are working remotely. Some have closed their ministries and some actually have curfews in place. We just see all those items contributing to more of a timing issue, so we reduced the outlook there if that helps.

But still, it's still lower to mid-single digits in night vision for the year.

And that was compared to what it was the prior?

It was in the low double-digits.

Our next question is Doug Harned with Alliance Bernstein. Please proceed with your question.

You know when you talk about the synergies you're ahead of plan $165 million that synergies for 2020 and you've had the - and you've also had I would assume some impediments from COVID-19. I mean this seems like awfully good progress. I mean how does this give you more optimism when you look at that $300 million net synergy total overall? And I'd say that from two things. One is you're ahead of plan here, but also you're ahead of plan and perhaps you could have even done better had you not had the COVID-19 issues?

Yes. We're making really good progress here Doug. Look, we did move forward the $500 million, $300 million net, which we had expected in calendar 2022 to calendar 2021. So we're not going to be done at the end of 2021. We're going to continue working this into 2022, and it will become part of normal operations. So we do expect that the ultimate synergy value coming out of this merger is going to be beyond the $500 million and $300 million we've talked about previously because we're seeing it already; it’s coming forward and it's likely to go up. So we had $65 million in a stub year; we start out of the gauge very, very quickly. I wouldn’t say it was conservatism coming into this year, but we were still a fairly new company. There were a lot of moving parts in the year. We guided to an incremental $115 million in net synergies earlier this year; that's getting quite a bit better, more visibility that we're seeing right now in indirect spend. We've seen the consolidation of all of our benefits programs now being completely implemented. All of the CHQ and segment consolidations are now essentially done. We're just seeing better progress. So is there any impact from COVID? It is probably on the fringes; there are going to be some issues that we might have that are already embedded in these numbers that we're talking about here, Doug. Some of the opportunities are really supply-chain-related; they may slip out a little bit, but we feel very good about the trajectory we happen to be on. We've got a very seasoned integration team, people that know how to work and drive their jobs in and are doing a great job remotely. So we feel good about this. And if anything, we have maybe a little more opportunity in the year as opposed to risk.

Our next question is Noah Poponak with Goldman Sachs. Please proceed with your question.

Bill, just trying to rethink through the 2022 $3 billion free cash flow target as we all do every quarter. And at one point it looked pretty conservative. It's now taken the hit of you know if you're going to divest 8% to 10% of the revenues, and then if there is still aerospace coronavirus impacts that far out. But you're reiterating 2020 with the business so to lay those out of the free cash flow and then the reset the aerospace businesses and then the $3 billion is kind of 5% or 6% growth each of the next two years. So I guess one, just kind of high level, do you still view that number as having some conservatism in it or is it just sort of hanging on despite the hits that it's taken and specifically in the aerospace businesses, do those need to recover by then to get to the $3 billion, or can they actually just walk along the bottom and you can still get to the $3 billion?

Well, let me start here Noah. Again, $3 billion, as Bill mentioned, is premised on us being able to continue to get improvement in the working capital down to around the 50 days. We still see in spite of the business where things are today, the path to be able to deliver that. We've identified the opportunities and a lot of that as Bill mentioned is sitting in inventory, and a lot of those benefits weren't necessarily pegged to the commercial business or some of it that was there, and yes, we'll see that at the lower cash flow projection than we otherwise would have before the COVID-19 in commercial. But we have the runway and in working capital to be able to do that. As Bill mentioned, we see the path; it's not going that it's certainly it's going to be more challenging than it was before, but I wouldn't characterize it as hanging on. I would say that perhaps our buffer, our questions, is a little bit lower than it was before, but the path is still very clear to us.

Okay, that's really helpful. And Jay just a quick follow-up on the free cash flow and any ability to articulate to us what ongoing seasonality through the year should be because if I remember correctly you had discussed pulling some forward into the fourth quarter of 2019, but then the first quarter of 2020 is better than expected. I know you have a lot of moving pieces in there, but should the free cash flow through the years going forward be relatively level loaded, or should it be a pretty steep ramp through the year?

It's probably somewhere a mix between the two. It's been kind of back end loaded over the past number of years. I would say in 2019, even 2019 was a little bit more level loaded. This year, you know, $533 million is pretty consistent with what we did for the two companies combined last year. And so our goal is to make it more linear throughout the year, but I think there is some natural level of linearity in there. We'll probably be still a little bit more back end loaded there. So yes, it'll still probably stay a little back end loaded, but again, a lot better than it's been historically; in 2019 I think was started that.

Our next question Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Good morning Bill, Chris and Jay, and thanks for the time. The growth is muted in 2020 at 3% to 5% organic, and just from what we've become accustomed to; I understand aviation has two points of that headwind. I guess how do we think about some of the revenue capture opportunities and timing, whether it's the 41 proposals you mentioned and the three incremental down flex this quarter and or how the core business just accelerates in 2020 and 2021?

Sheila, thanks so much for the question. The revenue synergies, you know, rolling out over the next probably 12 to 18 months. As I mentioned in my prepared remarks, orders are in the tens of millions; they could grow more substantial in 2021 and 2022; they required that were down select; they have to be then finally awarded, and they start to build in time again year and a half order or so. So yes, we're down, we're at 3% to 5% this year. The defense business remains very good for us, it's up around 8%; you know international is, as Jay mentioned, we're flattish, but the commercial part of the portfolio, which is aerospace public safety, is going to be down more than 20%. So the defense piece, the core defense part of the organization is very healthy it's high single-digits. And as we look out over in the next year, we, you know, we've got, we see, you know, good bookings this year. We see a very good pipeline about $64 billion of pipeline of opportunities; it's up about 8% since we closed on the merger. We have revenue synergy opportunities starting to kick in. So I see us getting back in 2021, 2022 to more in that mid-single-digit range. We'll see how the next nine months play out this year and what happens with the COVID pandemic, but in the budget process beyond 2021. But you know I think things should recover, we’ll be in pretty good shape beyond this year.

Our next question is Seth Seifman with JPMorgan. Please proceed with your question.

Bill and Jay, can you talk about capital allocation? I do certainly appreciate the message around growing free cash flow per share, and how repurchases is a big tool for you guys. But can you address that tool in an environment where potentially the norm can move against repurchases, what else could you do with cash in that kind of dynamic?

Well, look, I mean, for - at the moment, Jon, I mean, our overall philosophy on capital deployment really hasn't changed. We're going to drive and generate substantial free cash. We're going to pay an attractive dividend that has a payout ratio in the 30% to 35% range; we saw back in February raised a dividend by 13%, 10% back in August last year. So we’ll continue to be committed to paying an attractive dividend. We don't have our leverage ratio, as Jay pointed out, is pretty attractive. Anything debt that's coming due will likely be refinanced, so that will be a pull on cash. We don't see pension contributions for probably another year or two depending upon what happens in rates and returns this year. So it does leave a lot of capacity for deployment. And at the moment, we're still committed to returning that to shareholders in the form of repurchases. I have mentioned in my remarks for the year we're going to be a $1.7 billion. So we’ll return the $1 billion in proceeds from selling SDS. Beyond that, we'll pause it, but then you have a tremendous amount of capacity back into the year a lot of the liquidity and I see the sort of normalizing as we get into calendar 2021.

Our next question Ron Epstein with Bank of America. Please proceed with your question.

You’ve mentioned the $64 billion of opportunities now with the joint company. Can you talk about some of those that are more due to your term? I think we can keep an eye on it to keep score on how you're doing relative to the $64 million opportunities.

Good morning Ron, it's Chris. We have several opportunities that I think are a little more significant you can track later in the third quarter of the current plan is for the Next Gen Jammer contract to be awarded the competitive opportunity. I think that will be interesting to watch. We've talked a lot about our responsive satellites. We've been getting orders and continue to get orders on those satellites. So you can track that. On the ISR front, you know, we've talked a lot about the Peregrine program in Australia that will have follow-on opportunities, but we also have comparable opportunities in Italy and elsewhere around the world. The EW capabilities are reined UAE comes to mind. Clearly, the tactical radios we have a fair amount to go here in 2020. And then even on the international front, we're on maritime theme with a variety of OEMs and shipbuilders from Romania to Taiwan to Australia, so you will be able to track those or highlight those as the couple to follow on.

Our next question comes from Peter Arment with Baird. Please proceed with your question.

Good morning, Bill, Chris and Jay. Bill, you gave us some color on the international just flat for the year, I mean what kind of visibility to have our conversations with your customers. I know Chris mentioned that there are some export offices closed or some customers are even closed just thinking about growth exiting COVID-19 worldwide. What people kind of focus you need to see in the second half of this year? Thanks.

Well, we said we think the revenue in international will be roughly flattish year, so clearly you know booking some of the orders that are important back have will require engaging with customers happening today via phone, but we’re going to sort of start to see an ability to key customers to demonstrate product sign contracts, and that's going to require some face-to-face conversation. So there's a lot of dialogue happening right now. We're trying to get a sense for the timing of some of the opportunities we have in the back end of the year. We think it was appropriate given some of the short-term nature of the opportunities in tactical - and make sure optical to pull that out as which will be done here to recalibrate international for the year. But as this thing starts to open up, we've got a pretty good team internationally and they're out there meeting with their customers, talking to their customers, and we'll see, as we get towards the back end of the year, how the orders flow through.

Okay, thanks. Just a quick follow-up Chris, is there any incoming from the Wescam, regarding just from a demography perspective, just an opportunity in the COVID-19 world? Thanks.

Yes, the Wescam business is doing quite well. I think, if you're referring to doing some sort of thermal imaging or such, it's really not at that price point, it's better sticking with their core market and focused on the airborne assets. So, hope that answers.

Our final question comes from Pete Skibitski at Alembic Global. Please proceed with your question.

Bill, something I've been curious about kind of top level, is this topic of 5G, and I know it's obviously kind of a commercial standard, but I've also seen you mentioned that DoD is running some pilot projects related to 5G as well. So I'm just curious, if you can give us your thoughts from a top level on whether or not this impacts L3Harris in any way, kind of and/or if we feel like it's a technology you need to be involved in developing or in some other way? Thanks.

Yes Pete, look it's a good question; I won't be able to give you a complete fulsome answer on this, but we've had an internal team focused on 5G. We're not an inventor, but we certainly have applications that are using 5G technology, so we do play in the space. We need to be present in the area. We need to find DoD or defense-related applications of 5G; it's going to affect warfighter effectiveness. So we do have specific activities here. I wouldn’t say it's a big driver this year, but certainly over time it's a core capability that we need to have as a leader in spectrum superiority. So clearly Pete that's - it's something that is central to our strategy over the next several years.

Okay, more to come, thanks for the color.

Our next question Myles Walton with UBS. Please proceed with your question.

Maybe Bill - in addition to the higher progress payments, the DoD seems to be also bidding pretty aggressively on pulling forward contract awards and getting kind of the money out of the hands of the DoD and obligating that as quick as they can. I'm just curious, did you see that in the quarter? Obviously good booking at SAS and IMS, or is that something that might help bookings continued to be strong in the second quarter and third quarter?

Look, Myles, it’s a good question, credit due to the folks in DoD really across the services we've had very active dialogue both Chris and I and some others on the team with a lot of leaders across DoD and across the services. And they've been very aggressive not just on prog pay, but accelerating awards. You probably heard, you know, Hondo at the Navy accelerating quite substantially awards. So we did see some opportunities move left; some out of Q2 into Q1, some out of the back half of the year into the front half. Chris mentioned A3M; that's an opportunity we saw an acceleration of an opportunity in IMS the Virginia AMP. So we did see some opportunities moving left, and I think that we'll continue to see that; the DoD is really focused on this. They are trying to put money on contract that we then quickly then put suppliers on contracts. So we keep not just cash flowing, but opportunities flowing into the supply base. So certainly something we're all focused on.

Okay. And clarification Jay, on the slide on the lock of EPS, there's pension called out under operations another $0.28. How much of that $0.28 is pension?

About $0.10 in that $0.28; there is a lot of moving parts in there. But the pension is incremental about $25 million.

We’ll go next to Michael Ciarmoli with SunTrust. Please proceed with your question.

Just as I guess as you guys are thinking about COVID-related impacts, disruptions, any other color that you have on your broader supply chain. I mean you guys are pretty technology driven I'm sure there's a lot of smaller components, subsystems, discrete electronics you're procuring? Are you seeing any potential risk either from parts procured in the Asia-Pacific geography, or how are you kind of sizing that potential risk as you go forward here? Any need to build buffer stock of inventory on certain maybe at-risk product lines?

Yes, great question, this is Chris. On any given day, there is tens of millions of revenue risk that change on a weekly basis. We really started looking at this back in January in the Asian markets. I think we've been able to mitigate all that risk. A lot of this depends on the countries; India shuts down, Mexico shuts down. We have to monitor those suppliers, look for second sources, but I think we're doing a real good job. We have a dedicated team focused specifically on COVID supply chain, and Bill and I get daily updates on the progress. So great question, we're trying to use predictive analysis, identify the risks and mitigate it on a regular basis; hope that helps.

And our final question comes from Robert Spingarn with Credit Suisse. Please proceed with your question.

Two quick things, Bill on the state and local budget constraints you talked about before in public safety. How do you think about how the crisis may have revealed any shortcomings in the public safety communications, and what might be the opportunity coming out of this thing? And then I have a higher-level question just on budget austerity and how you and Chris think about the possibility that some, you know, that the budget, the defense budget at some point will be funding stimulus repayment, that sort of thing; not necessarily what we saw 10 years ago, but some kind of shift in spending priorities at the federal level a couple of years down the road?

So hey, look, really good questions, on public safety i.e. this could drive an accelerated shift from LMR to LTE that's been gaining some steam with FirstNet. Fortunately, we've got a radio that is LMR LTE capable both qualifiable by ATT and Verizon. So I think we're really well-positioned for that transition. I think that having a domestic supply base here is important in that particular area. We have certain technology and applications that could allow us to open up new markets that go beyond first responders to healthcare providers that we've seen that happen over the last couple of months. So the state and local finances I think will be impacted in the near to medium term, and we've tried to capture that in our thoughts, but it could drive an acceleration from LMR to LTE. And relative to your question on the budget, so as you know, the 2021 budget came out a couple of months ago from the President, including, I think, 2% per year growth in defense; that obviously was all pre-COVID. A lot of discussion happening right now between the authorizer and the appropriators of what the budget will be for 2021. It came out about flattish from the President; a lot of the things that we're focused on are well funded and in that, including a lot of the classified budgets look pretty good. There's $135 billion of surplus investment account funding that still remains out there; it’s going to provide a little bit of tailwind to us. As you got into 2022, beyond 2022 into 2023, you've got an election year. Eventually you got a $4 trillion deficit that you know is going to have to be sort of paid for in some ways, but at the same time you got a very dangerous world. You could see what the North Koreans are doing, what the Iranians are doing, what the Chinese are doing, and Russia. So we're going to continue to be tested. The threats remain there and the investments that the DoD is trying to make are really long-term investments in technology back to sustain beyond the next couple of years. And I'm hopeful that that will be a bipartisan alignment to make sure we continue to fund the DoD. So thanks very much for that question, Rob. I appreciate that. So thank you all for joining the call this morning. During these uncertain times, we're managing risks aggressively and taking appropriate actions to drive value for all of our shareholders. I hope we’ll soon be operating under more favorable conditions. I want to close by thanking our employees for going above and beyond to support our customers and our essential missions, as well as the healthcare workers, first responders, and everyone in the front line fighting COVID-19. Thank you all. And be safe.

Thank you. This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.