Greetings. Welcome to the L3Harris Technologies First Quarter 2024 Earnings Call. As a reminder, this conference call is being recorded. It is now my pleasure to introduce your host, Mark Kratz, Vice President of Investor Relations. You may now begin, Mr. Kratz.

Thank you, Rob. Good morning and welcome to our first quarter 2024 earnings call. Joining me this morning are Chris Kubasik, our CEO; and Ken Bedingfield, our CFO. Yesterday, we published our first quarter earnings release detailing our financial results and guidance. We also provided a supplemental earnings presentation on our website. As a reminder, today's discussion will include certain 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 our SEC filings. We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release. I'd now like to turn it over to Chris.

Thanks, Mark, and good morning, everyone. Since the merger of L3 and Harris 5 years ago and after strategic acquisitions and targeted divestitures, we have built a company with a national security focus. We have critical technologies in all domains that align with national security priorities and the global threat environment. Responsive space, resilient communications, and rocket motors are critical for the future fight. The trusted disruptor strategy and our portfolio are setting the stage for L3Harris to differentiate ourselves with top-line growth while simultaneously increasing our industry-leading margins. The global security environment continues to be one with heightened tensions and regional conflict. Domestically, Congress recently passed the 2024 Appropriations Bill, which included $844 billion for defense. Our programs are well-funded, and we are positioned for profitable growth across much of the enterprise. Demand remains strong for our products and solutions as we started off the year with a 1.06x book-to-bill ratio. Internationally, we continue to see a strong and geographically diverse pipeline of opportunities. As an example, we were recently awarded a $150 million program to provide secure networking to Taiwan, displacing a long-time incumbent. This win is an integral part of our interoperability and supports the CJADC2 mission. Turning to tactical radios, we maintain a robust international pipeline of over $10 billion, including several FMS cases, primarily for Europe, totaling more than $1 billion. These opportunities, along with the continued strong backlog, give us confidence in an international tactical radio ramp in the second half of the year. Other international opportunities are supported by the DoD's supplemental funding, particularly in Ukraine. Earlier this week, the President signed a foreign aid package for Ukraine, Israel, and Taiwan that includes $67 billion in funding for key defense programs. L3Harris has been a key supplier in Ukraine since the start of the conflict, and the need for this equipment remains strong. Our products are being used in theater and exceeding expectations. The supplemental bill will provide our allies access to needed capabilities while at the same time support the U.S. defense industrial base, including small and mid-sized businesses. With the bill just recently passed, we will provide more information during the next earnings call on the incremental opportunities that it provides. Our workforce is proud to support our country and its allies around the globe. Turning to 2024, our strong first quarter results reflect improvement across our diverse set of programs and products. We're executing on our contracts and improving cost and schedule performance, which helped drive net positive EACs for the second consecutive quarter. In our product businesses, we are improving quality and driving higher on-time deliveries. Turning to programs, I see development risk abating. This is not to say that we're out of the woods on all of our development programs, but the business is performing well, and the disciplined bidding focus and programmatic rigor are starting to pay off. LHX NeXt cost savings are also starting to contribute, and we see that benefit accelerating in 2024 and 2025. Ken will cover the financials in more detail, but I wanted to highlight that revenue was up double digits year-over-year, and operating income was up $150 million, resulting in margins expanding 80 basis points to 15.1%. Given the strong start to the year, we are raising our 2024 margin EPS and revenue guidance while reaffirming our free cash flow commitments. At our Investor Day, we committed to $1 billion in LHX NeXt gross cost savings by 2026, focused on optimizing our workforce infrastructure and supply chain. The initiative will enable us to maintain our industry-leading margins while investing in technologies, tools, and systems to support our customers and employees. We are accelerating our LHX NeXt activity in 2024. And earlier this month, we implemented a workforce reduction that will result in about 5% fewer people than when we began the year. With these reductions, we are focused on eliminating non-core processes, streamlining our organizational structure to maximize efficiency and rightsizing our physical footprint. To summarize, our actions to date have put us ahead of our gross run rate savings target of $400 million by the end of the year. There's more work to do, and I am confident in our LHX NeXt leadership team and know that our collective efforts will yield the $1 billion savings target, as previously committed. Operationally, we continue to make progress within our Aerojet Rocketdyne segment. Since closing the acquisition, we've implemented processes and tools, which have helped reduce late deliveries by 20%. We've returned multiple programs back to green, and we continue to work with our customers and the DoD to accelerate and improve deliveries of these critical products and to support future growth. Aligned with that growth, it was recently announced that we were selected to be the primary propulsion provider for the Missile Defense Agency's next-generation interceptor. We anticipate this to be a multibillion-dollar opportunity over the life of the program. Outside of operations, our finance team saw an opportunity to refinance some variable rate debt and replace it with fixed rate notes, saving 150 basis points. On capital deployment, we increased our dividend for the 23rd consecutive year, and we were able to get back into the share repurchase market in Q1, executing about half of the 2024 share repurchase target. We expect about $1 billion in gross proceeds from the previously announced divestitures, which will largely be used to reduce our leverage below our 3.0 target ratio. We remain focused on achieving the financial framework we laid out at Investor Day, and our first quarter results are a solid step forward towards delivering on our commitments. I'll now turn it over to Ken to provide additional perspective.

Thanks, Chris. Let's start with consolidated results for the quarter. We reported solid gains of $5.5 billion, including over $900 million for SDA tracking Tranche 2, nearly $150 million for U.S. Marine Corps and SOCOM handheld tactical radios, and an international award for a NATO country for missionized business jets that leverages our domestic ISR capabilities. Backlog remains at over $32 billion and supports margin expansion opportunities as we move forward given operational improvements and recent bidding discipline. Revenue grew 17% and 5% organically with growth in 3 of our 4 segments. Revenue at IMS reflects aircraft procurements in Q1 '23, resulting in lower sales in Q1 2024. As Chris mentioned, operating margins expanded to 15.1%, up 80 basis points from improved operational and program performance while also starting to see the benefits of LHX NeXt. EPS grew 7% to $3.06 per share primarily from segment operating margin performance, partially offset by higher interest expense and lower pension income. On a pension-adjusted basis, first quarter EPS was up over 10%. Free cash was an outflow of $156 million as first quarter cash flows are typically the lowest of the year. As you will recall, we derisked 2024 cash taxes at the end of '23, and we remain confident in delivering free cash flow growth this year to $2.2 billion. I'd now like to turn to some segment details for the quarter. I highlighted earlier that revenue grew 17% from the acquisition of Aerojet Rocketdyne and organic growth in our SAS and CS segments as we continue to see strong demand for Space Systems and Tactical Communications businesses. On margins, we drove operational improvements throughout each of our 4 segments. In SAS, we are making progress on development programs, including the recent launch of 5 L3Harris missile-tracking satellites as part of the SDA tracking Tranche 0 and HBTSS programs. With these space investments and risk largely behind us, we are beginning to realize the benefits of the new growth areas and maturing processes as we move forward. These efficiencies were a contributing factor in expanding SAS margins by 100 basis points in the quarter. We made progress on program performance, resulting in a $75 million improvement in net EACs versus the first quarter of 2023. These were driven by improvements in all segments as our focus on operational rigor continues to pay dividends. This was most prominent in our CS segment, where the Integrated Vision System sector saw stronger results. The Tactical Data Link business continues to perform well as we realize synergy benefits of a consolidated business within our broadband communications sector. And in Tactical Communications, which drove solid results with an increased level of lower-margin DoD deliveries, we anticipate it will continue through the first half of the year. On capital allocation, our plan remains the same. We will continue to focus on deleveraging the balance sheet before we look at opportunities to accelerate share repurchase beyond offsetting dilution. During the first quarter, we returned over $450 million to shareholders through dividends and share repurchases. Moving on to 2024 guidance. We are tightening our revenue range of $20.8 billion to $21.3 billion, while we reaffirm our free cash flow commitment of $2.2 billion. We are increasing total company margin guidance for the year to greater than 15% versus prior guidance of approximately 15%. This increase is most notable in SAS, where we now expect margins of approximately 12%, up from prior guidance of mid- to high 11%. Outside of operations, we are also updating our guidance for pension income. At the end of last year, we combined the acquired Aerojet Rocketdyne pension assets with our own. Our actuarial update is more positive than our new outlook, so we have updated those figures accordingly. Lastly on guidance, we are increasing our earnings guidance to a range of $12.70 to $13.05 per share, up from prior guidance of $12.40 to $12.80. From a modeling perspective, I would continue to point out that our CS segment will have a heavier DoD tactical mix in the first half that has less margin opportunity than international programs. Interest expense will also remain elevated in the second quarter. Both trends should reverse as we make our way into the second half of the year, along with a second half-weighted free cash flow profile. Overall, a good start to 2024, and we remain focused on executing to deliver on commitments to our customers and our shareholders. With that, let's open the line for questions. Rob?

And our first question is from Noah Poponak with Goldman Sachs.

Chris, I wanted to ask about your trusted disruptor strategy. You've mentioned efforts to enhance your presence and scale in the sector, which seems to be yielding some results. With the emergence of new competitors in the space who may be finding more success than before, how do you view that? Does this competition pose a challenge, or is the market large enough for several players to thrive? And Ken, could you clarify regarding LHX NeXt? Will all of that be excluded from earnings, and is the entire amount cash or does it include some non-cash elements?

All right. Noah, thanks for the question. Yes, I think our strategy is working, as I said, and the portfolio is well aligned. Relative to the pie between the supplemental and the fiscal year '24 budget, we're well over $900 billion. So I think there's plenty of DoD funding. Relative to the new entrants, which sometimes I like to think of us as one since we're 5 years old, but I know where you're going with your question. We've taken the approach to team and work collaboratively with these new entrants at the highest level. So a lot of the new entrants tend to be a little more software-focused. I think the traditional, including ourselves, are a little more hardware-focused. So we're working collaboratively. There's been some recent awards in Q1 where we are actually a subcontractor to a new entrant that won a significant program. And sometimes, they work under us. So I would say we're embracing them and working collaboratively with them. And of course, I've talked about our Shield investments in the past and working with those venture capital companies who are much smaller but also have great technology. So I think it's working, and that's been our approach. Ken?

Yes. No, from an LHX NeXt perspective, we are adjusting out the implementation costs of the program and certainly then trying to leverage the benefits of LHX NeXt in the businesses. We talked about what that target looked like for 2024, and the businesses are off working hard to operationalize that and reflect that benefit in their performance. And I think you're starting to see that here in the first quarter. And then from a cash perspective, we're primarily just adjusting out the cash severance costs related to the program. And you'll see all that reflected in the schedules to the earnings release.

Yes. Look, we've gotten the feedback relative to our disclosures. So under Ken's leadership, we're trying to cut back on these one-time non-GAAP adjustments and be much more transparent. So I think it will be all laid out clear for you to analyze.

Our next question comes from the line of Pete Skibitski with Alembic Global.

Chris, could you explain how your win with NGI affects your outlook for Aerojet? Also, considering the fiscal '24 supplementals, do you feel more confident about achieving that $23 billion target?

Yes, absolutely. NGI, which aims to protect the U.S. from evolving long-range ballistic missile threats, is a significant achievement for the OEM. We were a merchant supplier for both teams, so this provides us with a helpful boost. When I reviewed our deal model, this was not taken into account when we acquired Aerojet Rocketdyne, making it beneficial for our internal goals. Aerojet Rocketdyne has excellent technology, particularly with large solid rocket motors, though the quantities are still to be determined. It will initially begin as a development program, and we are in discussions with the Prime. A contract has not been signed yet, but as reported in the media, we were chosen as a propulsion provider. This is very exciting, and I anticipate a gradual ramp-up. By the 2025-2026 timeframe, I believe we will start to see revenue reflected in our financials.

The next question comes from the line of Kristine Liwag with Morgan Stanley.

Since you formed a new Business Review Committee back in December, can you give us any color on how progress has been? What are the key areas that have come under focus? And how this compares to your LHX NeXt pipe initiatives as well? Do they overlap?

Yes, Kristine, it's Chris. We did set up the ad hoc Business Review Committee of the Board comprised of 4 Board members, as you saw. We've been meeting a couple of times a month for a few hours each. And we brought through a variety of topics that have been laid out in the charter that we filed in the 8-K. I would say from anything from operations, we've looked at the programs, they've reviewed the program review process, the bidding process, the LHX NeXt strategy and goals. They've reviewed the portfolio, our capital deployment strategy. And we're just kind of checking through the items in the charter. Some topics are one meeting, some topics are 2 meetings. I feel like we're about halfway through the process, maybe a little more. And then probably middle of the year or so, the BRC will report out to our Board of Directors with observations and recommendations and findings. So I'd say it's been a very collaborative process. I think it's been good for the company, and it's a good way to orient some new Board members quickly about the company and what we're trying to accomplish. So I'd say all is going well to this point. So more to come.

The next question is from the line of Gavin Parsons with UBS.

Wanted to ask on the nearly 100 basis points of year-over-year margin expansion. If there's a way to parse that out between the drivers? I know a lot of them go hand in hand, but how much of that is NeXt versus EACs, repricing for inflation, mix, and so on? Just if there's a way to think about what the drivers were in buckets.

Yes. Gavin, it's Ken. I would say that we're seeing improvement in the kind of the high-level buckets across the board. I would say we're seeing some mix benefits in terms of, as Chris mentioned, kind of moving out of some of the development phase of contracts and into some of the more mature phase. From a mix perspective, we are seeing some of the areas of the business that are a higher mix of cost-plus growing. So as an example, space within SAS was a strong grower and has a bit of a higher cost-plus mix. So that kind of works the other way a little bit. But we are seeing some of the disciplined bidding start to come through in terms of confidence in our ability to perform as well as price discipline and then just performing on our programs and certainly LHX NeXt contributing. And I wouldn't want to put numbers on each of the individual buckets. But largely, as we think about kind of how you bridge from last year to this year for the most part, each of those major buckets are contributing.

The next question is from the line of Peter Arment with Baird.

Chris and Ken, you've made significant progress on LHX NeXt, and roughly one-third of it relates to your gross saving targets, specifically labor reductions. You recently made an announcement about this. Could you provide more insight into how you envision the situation evolving for LHX and the actions you've been implementing? Additionally, any future considerations you have regarding further shaping the portfolio would be appreciated.

Yes, thank you, Peter. To start with, the workforce is a major focus for LHX NeXt, and we've made significant progress there, achieving about one-third of our goal. The next phase will be more complex and time-sensitive, particularly regarding our facilities. Our aim is to reduce the number of facilities from 275 to 200. We have identified around 7 or 8 facilities to begin the process in the second quarter. While there will be some costs associated with the relocation and consolidation, these are smaller entities that will be more effective when combined into larger facilities. We're also working on reducing our ERP systems and have invested in technology known as a unified data layer. This technology will help us access data more rapidly by layering it over our existing systems. Moreover, we have significant IT initiatives underway, including reducing the number of data centers from 85 to just 2. This infrastructure work will take time and extend into 2025 and 2026. We've initiated indirect procurement outsourcing, capitalizing on the buying power of our enterprise, which will help us with both pricing and volume. We're on track with this effort. We aim to enhance our supply chain, which goes beyond traditional supply chain considerations to integrate all essential functions related to our products, with the primary goal of cutting product costs. This includes engineering, supply chain management, and contracting efforts. We expect to achieve approximately $600 million in savings through this process. Regarding portfolio shaping, we currently have two transactions in progress. The antenna business is set to close around the middle of this year, specifically in the second quarter, which is expected to generate a couple of hundred million dollars. Our commercial aviation business transaction is anticipated for the second half of the year, contributing to the target of $1 billion in proceeds. We're critically evaluating the rest of our portfolio and expect to reach our leverage ratio through these two transactions. If we can secure a favorable price for the non-core assets we've identified, we will proceed. However, many offers we've received have been lower than expected, and we are not in a position of desperation to sell. We will wait for better valuations before moving forward with additional transactions; otherwise, we will continue to manage and grow the business as is.

Our next question comes from the line of Jason Gursky with Citigroup.

Chris, would you spend a few minutes kind of walking around the Communications business? And maybe give us some updated thoughts since you last reported out on the funding environment. We've had fiscal '24 that got passed; '25, they got introduced. We've had some supplementals as well. And just kind of give us your take on how this plays out over the next couple of years and maybe offer up some comments on Link 16 and the expected refresh of all that hardware and when that kind of hits. Just what have we learned here over the last couple of months on the Communications business?

Yes. Thanks, Jason. So let me start with Link 16. Again, we have a footprint on 20,000 platforms, and then there's variations of Link 16 and other data links that we've developed that are going to be able to go into those platforms or footprint. So I think we're starting to see that. Our ultimate goal was to get Link 16 into space. I can tell you for the SDA transport opportunities that are coming up, our team is going to be a merchant supplier. And as of now, it looks like we're going to be on all the teams providing Link 16-type capability and space. So we're excited about that. Relative to the Communication Systems, I want to reiterate the opportunity that we won in Taiwan, $150 million for networking, which was a cross-company win led by our Communications segment. So that's a big deal for us. And as I mentioned, it really supports the CJADC2 initiative that our country has been talking about for quite some time. Relative to the radios, I mean, this is just absolute good news. I know we've been talking about modernization, not only here in the U.S. but globally. And as I mentioned, we have 6 FMS cases that are currently going through the process, through the system in Europe. The backlog is going to be a record backlog. Even in Q1, we were able to get the Marine and the SOCOM radio orders booked. And there's a certain capacity and ability to deliver out of our Rochester facility, and it really comes down to, to be honest, how quickly we can get these supplemental funds under contract and approved and delivered. And with our trusted disruptor strategy, our business model actually allows us to potentially deliver radios within a week of getting the contract, depending on the configuration in the country. So the way I look at it, we have high confidence in the guidance we've given. We clearly have the second half ramp-up. But which countries will get which radios will really be a factor of when the funding turns into a contract. And those that don't get signed and delivered in 2024 will clearly be 2025. So just feel better about the business in a huge way. And again, the products, our in-theater being tested daily, and they're working and exceeding expectations. And the whole focus on resilient communications is paying off.

Our next question is from the line of Ken Herbert with RBC Capital Markets.

Chris and Ken, I have a two-part question. First, regarding the Communications segment, you achieved 24% margins in the first quarter. The guidance suggests a slight increase in the second half, but it seems that with the international mix and possibly a weaker second quarter, there could be some upside. Can you clarify if there were any one-time factors in this segment in the first quarter? Additionally, what should we keep in mind as we consider the second quarter and the latter half of the year? On a broader scale, it appears that international is growing, perhaps at a quicker pace than the U.S. Could you discuss the long-term margin implications of the international opportunity within the CS segment and more generally?

Sure. I'll address that question about CS margins. We achieved a 24% margin in the first quarter, which reflects strong performance from the CS team. This margin is influenced by a higher domestic mix compared to late 2023 and higher than what we anticipate for the second half of 2024. We have guided for a low to mid 24% margin for CS for 2024. Our message is that we expect the domestic mix to remain steady in the second quarter, similar to the first quarter, and solid performance could lead to comparable outcomes. To push the margin to the low to mid 24% for the full year, we are exploring some international opportunities to gain additional margin benefits for the overall year. Regarding the international side, as Chris mentioned in his remarks and in reply to Jason's question, there are significant international opportunities within the CS segment. Additionally, we are looking beyond that, especially at IMS, where we see international potential, and other segments also possess international components. Though we do not closely track all end customers in some of these areas, international margins are generally stronger overall. I referenced an ISR program by a NATO country, which we anticipate will yield strong margins as we consider how to fulfill these contracts with our international allies and partners, while acknowledging the associated risks and channels. If performed well, we expect these programs to enhance margins for the business. We foresee this trend continuing. It's worth noting that CS is the quickest segment in terms of converting international orders into sales. For example, the ISR program we discussed will span several years, and we expect to see its revenue contribution unfold over time. Now, I'll hand it over to Chris for further comments.

Yes, Ken. Just as a reminder, we're in the low 20% of our revenue coming from international customers, and part of our margin improvement strategy is to grow our international business. And just as a reminder, about half of that is foreign military sales, which has margins consistent with the DoD work for the most part, and the other half is direct commercial sale. And that's where we tend to have the higher margins. But as Ken said, more international is synonymous with higher margins, and that's where our focus is. These supplementals are a big step in the right direction.

Our next question is from the line of Gautam Khanna with TD Cowen.

Can you hear me, guys?

Yes, we can.

Terrific. I just had 2 quick questions. First, I was wondering if you could give us more granularity on the RF tactical backlog book-to-bill trends. You mentioned something on SOCOM. And if you could just talk a little bit about overall mix this year and perhaps next in that business? And then I had a question on IMS EACs and if those have turned positive? And if not, what sort of still holding that segment back with respect to kind of the profit accruals?

Yes. From a tactical radio standpoint, we had strong bookings during the quarter and currently hold a substantial backlog, which is valued in the multibillion-dollar range. This is particularly impressive for our fastest-turnaround business, indicating a robust order volume at this time. We're optimistic about the possibilities ahead. The opportunity with the Marine Corps and SOCOM is significant as we deepen our partnership with this key customer. Additionally, we have been selected for the Air Force Next Gen Survival Radio, marking an excellent chance to enter a new market. There are also supplemental and international prospects, contributing to a promising outlook for our Tactical Communications business. As mentioned, our business model allows quick adjustments to meet demand and fulfill critical needs in the field. Regarding IMS, all segments have achieved improved performance in net EACs, including IMS, which has shown significant improvement compared to Q1 of '23. As our longest-cycle business, IMS takes time to adjust operations, but it recorded excellent results with an 11.4% performance in the first quarter, aligning with our full-year guidance for IMS in '24. The program performance is stabilizing, reflecting the benefits of LHX NeXt and the dedicated efforts across the IMS segment. We're enthusiastic about the ongoing stabilization and strong performance as we progress through the remaining quarters of '24.

Our next question is from the line of Richard Safran with Seaport Research Partners.

Chris, Ken, Mark, I wanted to ask 2 things about Stand-in Attack. It was an opportunity for you to be prime. And correct me if I'm wrong, I think you decided to no bid. We're hearing a lot more about too much risk being pushed to industry. One of your competitors just talked about adjusting for that in their bids. So I was curious about what your thinking is about bidding going forward. And what's the next opportunity for you to be prime?

Thank you, Richard. I believe I've been clear about our bidding strategy. We've discussed our approach to bidding discipline a few times. There are two aspects to consider. Many companies in this industry spend excessive time and resources focusing on a price-to-win strategy and bringing in external consultants, which we find interesting but not relevant. Instead, we look at our labor, supply chain, overhead, and what is a reasonable fee. We tally that up for our bid. If it's considered too high, we move on; if it aligns with our past performance and capabilities, we accept the order. This marks a slight shift in our approach over the past year. However, what's more crucial is targeting the right types of contracts. In the case of Stand-in Attack weapon, it was a fixed-price development contract with fixed-price options, and we won’t bid on any programs requiring a fixed price for options on products not yet developed. This is simply common sense. Some individuals in the department may agree with me, while others might not. The trend we observe in most negative Estimates at Completion across the industry, when analyzed for root causes, often points to poor contracting vehicles. No one is flawless, and there are performance challenges, but it's impossible to deliver under a bad contract. We're trying to avoid that in our next prime opportunities. We evaluate whether it's best to act as a merchant supplier, subcontractor, or prime depending on our capabilities and customer needs. We had success with Armed Overwatch, where we recently received delivery order 3, bringing our total to 25 aircraft. There's HADES, a significant opportunity for the Army involving the High Accuracy Detection and Exploitation System, where we're bidding for up to 14 aircraft globally. This aligns well with our ISR and other capabilities, so it would be a significant win for us. We also have some prospects in maritime undersea ranges as prime and numerous follow-on opportunities in classified areas. Just to note, at the time of merger, we had no satellites in orbit, but we launched six last quarter and have been awarded 60 satellites as prime, with more on the way. There are various opportunities at Aerojet Rocketdyne, though these are follow-ons and not prime programs. As for the SDA, we're currently looking at SDA Tranche 3 for tracking. We're the only company awarded Tranche 0, 1, and 2, totaling 38 satellites. We expect to receive an RFP in the fourth quarter for Tranche 3, which could add another 18 satellites. I hope that provides clarity, Richard.

Our next question is from the line of David Strauss with Barclays.

I wanted to inquire about the performance in the quarter, which seems to be significantly above your full-year guidance. How are you approaching this? Additionally, could you provide some insights on two programs that have received considerable media attention where you are a supplier, specifically the F-35 Tier 3?

Thank you for the question, David. I think you were cutting out a bit, but I believe your question was about SAS performance this quarter. The SAS team had a solid performance in the first quarter with a 12.3% margin rate, and they are doing well with their programs. We discussed some of the drivers, including the maturation of certain development programs, and also touched on the mix. As the space sector continues to grow, there is a greater cost-plus mix, which might slightly impact margins in the last three quarters of the year. However, we updated our guidance for SAS to around a 12% margin rate. While they achieved 12.3% in the first quarter, there is some potential upside from EAC adjustments. Given the strong program performance, we need to recognize that impact within the quarter, which leads to a higher booking rate moving forward. Additionally, there are cumulative catch adjustments that occur over a 90-day period compared to the full-year impact where things may moderate a bit. We remain confident in the SAS team and the guidance we provided for approximately 12%, and I know the SAS team is actively working to enhance that figure.

And I think the second part of your question was F-35. Our production deliveries are tracking. We have a ramp coming up in production here starting next month. So we continue to have good relations with Lockheed. In fact, I was just talking to them yesterday. They'll be starting to deliver aircraft, as you know. They'll comment on that themselves. But as they start delivering aircraft, we're going to have to ramp up even further and quicker. And that's our plan. We've made the investments in most of the infrastructure we need. So continued improvement month-over-month, quarter-over-quarter. And it's all about the core processor, and that's where the focus of the team is.

Our next question is from the line of Matt Akers with Wells Fargo.

Chris, I wonder if you could comment on the international pipeline at IMS in particular. You mentioned the award in the quarter, but just curious if orders are kind of starting to move there.

Yes, thank you, Matt. At IMS, we secured the NATO Electronic Attack Aircraft contract. Reflecting on this, it has been around 8 or 9 years since we discussed disrupting the market. I often mention our space example, as we effectively created the business jet ISR market. In the past 8 or 9 years, we've received over 50 business jet orders across five different platforms. There's an opportunity I mentioned in a NATO country in Europe and some long-term prospects in the Middle East. These projects typically take one to two years to finalize. The business jet market for electronic attack and ISR capabilities remains vibrant. In the Far East, we're currently working on our third bid, which might lead to several billion dollars in 2025, and I'm quite enthusiastic about that. There's growing international interest in Armed Overwatch; once we start deliveries later this year or early next year, I believe that market will expand. We also have some C-130 capabilities that could offer international prospects. We're collaborating closely with Australia in the maritime sector and continue to find opportunities there. Viper Shield, although part of SAS, has strong capabilities in F-16 electronic warfare and I anticipate growth there as well. Additionally, WESCAM with the turrets represents a rapidly growing market with global opportunities.

Yes. Chris, maybe I'll just add real quick on to that in terms of Armed Overwatch, so beyond biz jets at IMS. We did get a delivery order 3 on that program for 9 aircraft, I think bringing the total order to 25. And to your comments, I think as that program matures, it gives us greater confidence in the international opportunities for that aircraft. So looking to the building confidence on that one.

Our next question is from the line of Sheila Kahyaoglu with Jefferies.

In the past, you guys have talked about revenue synergies with a lot of discussion today focused on LHX NeXt, which is clearly great because your profit was up over 20%. So Chris, you mentioned Taiwan, and you won a bid over a 20-year incumbent. Maybe is there any way to think about potential share gains and investment? What it means for the revenue top line outlook over the next few years? I know you laid out mid-single-digit targets, but how do we think about your revenue growth and market share gains?

We are being selective about our investments and bids. In various sectors, particularly in space, we are gaining market share. Since the merger, we have been awarded 60 satellites as a prime contractor, including 38 for SDA tracking. It’s a competitive market, and we notice that some companies are exiting, indicating our success. We are profitable, and we have disrupted the market, which gives me confidence about our progress in space. Regarding the airborne sector, we are focusing on business jets and possibly Armed Overwatch, addressing gaps in capability and replacing long-standing competitors with improved solutions. Our maritime work, especially on undersea ranges, has become world-class. Six years ago, we had no presence there, but we managed to replace a long-term incumbent with a better offering that is well-regarded globally. Our torpedo launch and recovery system using unmanned undersea vehicles is also a promising market, and acquiring a few customers could significantly impact our undersea business. In the realm of radios, we are making notable strides, particularly with the Air Force's Next Gen Survival Radio, where we are one of two companies competing and could potentially be selected for a new market. Furthermore, we are continuously innovating in cyber, with daily advancements to stay ahead of emerging threats, resulting in strong growth and performance in that area as well. I hope this addresses your question.

Our last question is from Doug Harned with Bernstein.

Chris, you're currently observing Aerojet Rocketdyne, and the demand in that market is improving significantly. You mentioned the NGI win earlier. Reflecting on the demand and recalling our discussion from a year ago about the challenges at Aerojet Rocketdyne in Camden and the production bottlenecks, can you discuss the potential for increasing production now? What kind of growth do you foresee from that business, and where do you currently stand in eliminating those bottlenecks to enhance production?

Yes. Doug, great, great question. And yes, it was about 16 months ago when we announced this acquisition. And I think I agree with you. When I look at where we are now, the business case gets better and better. The demand, there was no conflict in Israel. People thought Ukraine would be done. Nobody anticipated a $900 billion of defense spending for 2024. So the tactical missiles, the nuclear deterrent, NGI, just tons of opportunities on SRMs. Over the long term, call it 5 to 7 years, double-digit growth on the top line does not seem unreasonable to me. We have to, of course, invest in the capacity. The bottlenecks, some of them are based on low yields and performance and supply chain. I think we've made good progress in that regard, investing in our suppliers, getting additional suppliers. I continue to think the more money the government can give to the supply chain, the better off we are. I continue to believe we don't need an additional solid rocket motor prime. What we need is someone working on the igniters, the nozzles, and the cases. And I think that would help unlock the potential. We've ordered equipment to continue to expand, whether it's mixers, ovens. They, unfortunately, tend to have a 50- to 60-week lead time, but we've placed those orders. And once we get that in, I think it's going to help with the ramp. We have DPA money to build some buildings, take existing facilities and modify them. So the consolidation and budget control act for a decade kind of stifled the ability for companies to invest and grow and inconsistent demand signals. But right now, I think everything is a potential tailwind. And we'll have the factories digitized by the end of this year, and we're making the investments and fixing the processes. So pretty excited about it. And 2024 is kind of catch up and continue to burn down the delinquent backlog and simultaneously invest and put in processes. But I think by the time we get to 2026, 2027, if all stays as is, it's going to really turn out to be a great acquisition. So I appreciate the question, Doug. And let me just wrap it up. And first of all, thank the workforce and the leadership team for a great first quarter. Obviously, thank you all for joining the call today. And Ken, Mark, myself, and the team will be engaging with many of you in person in the months to come. So thank you all, and have a great weekend.

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.