Greetings. Welcome to the L3Harris Technologies Second Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. As a reminder, this call is being recorded. It is now my pleasure to introduce your host, Danny Gittsovich, Vice President of Investor Relations. Thank you, Dan, you may now begin.

Thank you, Rob. Good morning and welcome to our Second Quarter 2024 Earnings Call. Joining me this morning are Chris Kubasik, our CEO; and Ken Bedingfield, our CFO. Yesterday we published our second quarter earnings release detailing our financial results and guidance. We have also provided a supplemental earnings presentation on our website. Today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please reference our earnings release and SEC filings. We will also discuss non-GAAP financial measures which are reconciled to GAAP measures in the earnings release. For those of you I haven’t met yet, I am new in this role and look forward to engaging with you in the near future. I'd now like to turn it over to Chris for some remarks.

Thanks, Dan and welcome to the IR team and your first earnings call with us. Last month marked the five-year anniversary of the transformative merger between L3 and Harris, and the creation of the industry's trusted disruptor, a proven alternative to traditional primes and new entrants, focused on relentless innovation to deliver capability with the speed, passion, and determination that our customers demand in executing their most challenging missions. Unlike traditional primes and new commercial entrants, we utilize both commercial and government business models with significant presence in each. We deliver commercial short cycle products, such as software-defined radios. We also execute on critical long-term programs that span the entire life cycle from development to production, including international exports, and ultimately sustainment and support. Our diverse and platform-agnostic portfolio enables us to work across the ecosystem as a prime, a sub, or a merchant supplier to deliver the best solutions for our customers and the best returns for our shareholders. Further, as the trusted disruptor, we are actively looking for opportunities to partner with small and large companies where it makes business sense. It was one year ago that we announced the successful addition of Aerojet Rocketdyne to the L3Harris portfolio. This acquisition increases our content on missile platforms and positions us for growth in new markets. A recent example is our role on the missile defense agencies' next-generation interceptor program. This leverages our industry-leading propulsion technology and innovative attitude control systems to defend against long-range ballistic missile threats. We are also integrating legacy L3Harris electronics capabilities. Since closing the acquisition, and as we've discussed on our last two earnings calls, we've made substantial progress in improving the operational performance of the business, and we continue to make investments to increase capacity and drive efficiencies to meet our customers' growing demand, including the expansion of key facilities in Arkansas, Alabama, and Virginia. As a result of these combined efforts, we have reduced overdue deliveries by nearly 40% in the past 12 months. Several of you had a chance to visit our inert center of excellence in Huntsville, Alabama, and we know you left with a better understanding of the business and the progress to date. Since the merger, we focused on integrating and shaping the portfolio to align with national security priorities and the future of warfare. We are in the right businesses spanning all domains while earning the highest margins in the industry with further upside potential. Looking forward, we remain committed to meeting the expectations of our customers and creating additional value for shareholders and our second quarter reflects progress towards achieving these commitments. We reported strong financial results for the second quarter, highlighted by segment operating margin of 15.6%, up 80 basis points versus the prior year, and non-GAAP earnings per share of $3.24 up 9%. These results underscore our focus on execution and driving profitable growth. On the demand side, our pipeline of domestic and international opportunities remains robust, and our total backlog stands at $32 billion. In our communication system segment, we ended the quarter with record backlog of over $6 billion from increasing demand for our resilient communication products. This is driven by DOD and international customers' needs for seamless, resilient communications across multiple domains as they face increasingly sophisticated near-peer threats. We continue to work with these customers to help them avoid the inherent vulnerability that comes from relying upon commercial communication and satellite network providers for their critical missions. Our tactical communications business continues to see growing international demand for European and NATO allies, totaling more than $1 billion in the near-term opportunities, and a continued robust pipeline of greater than $10 billion. Overall, we are continuing to see plenty of opportunity for resilient communications, propulsion, and ISR to highlight a few of our capabilities. We continue to make strides in our operational performance, which is reflected in our expanded margins. Programmatically, we're beginning to realize the benefits of our maturing risk management processes and disciplined bid rigor, as well as the initial benefits of our LHX NeXt Program, and that is showing up in our program results. Our first half performance provides confidence for the remainder of the year, leading us to increase our guidance, which Ken will discuss in more detail. I'm pleased with the progress we're making on our LHX NeXt initiative. In the second quarter, our efforts focused on workforce and infrastructure optimization, including the strategic collaboration for managed services, designed to accelerate the modernization and automation of our IT infrastructure while reducing cost and transforming how we operate as a business. We've made great progress, and we're ahead of schedule. The next phase of LHX NeXt is centered around supply chain management and leveraging the scale of our enterprise. This will improve cost, quality, and delivery for our customers while simultaneously offering our suppliers demand stability and an opportunity to grow along with us. And for us, it means supply chain management will be a competitive discriminator. Turning to capital deployment, as promised we are prioritizing debt pay down, continuing to maintain a competitive dividend, and returning excess capital to shareholders. In the quarter, we returned over $300 million to shareholders through dividends and share repurchases, and remain on track to meet our stated 2024 target of approximately $500 million in share repurchases, holding outstanding shares flat year-over-year. Aligned with our national security focus, we recently completed the sale of our antennas business and expect to finalize the pending divestiture of our commercial aviation business later this year, as we satisfy the remaining conditions to close. And finally, I want to thank the four Board Members who served on our Ad Hoc business review committee. Their recommendations were presented to the Board last week, and we are implementing actions in accordance with those recommendations. The focus was on reviewing our strategy and portfolio, program management, disciplined bidding processes, and LHX NeXt plans. The Business Review Committee executed as per its charter, and as such is now dissolved. Their recommendations are appreciated, and as I noted, are being executed in a rapid manner to continue to drive value for shareholders and customers. I'll now turn it over to Ken to provide insight on our second quarter results and 2024 guidance.

Thanks, Chris. I'll start with consolidated results for the quarter. Demand remains high, and in the second quarter we were awarded over $5 billion in new awards, resulting in a book-to-bill of 1.0, and total backlog of $32 billion. We were awarded a nearly $900 million contract for the delivery of electronic time fuses, which play a crucial role in replenishing our nation's critical ammunitions inventory. We were also awarded a $1 billion IDIQ contract with an initial task order of $123 million to supply the next lot of multifunctional information distribution systems, jitters terminals to the U.S. Navy, leveraging the unique capabilities of the TDL product line that we acquired last year. Consolidated revenue grew 13% or 1% organically. Operating margins continued to be strong, expanding to 15.6%, up 80 basis points, reflecting improved operational and program performance across all segments with LHX NeXt cost savings contributing. Chris highlighted our EPS growth of 9% as a result of strong operational performance. I'd like to add that on a pension-adjusted basis, second quarter EPS was up 13% as profitable growth drops to the bottom line. Free cash flow was $714 million for the second quarter driven by increased operating income and improved working capital performance. In the quarter, we repaid a $350 million note which helped reduce our net leverage to 3.2 times down from 3.5 times in the previous quarter. By segment, organic growth within our communication system segment was over 4% from higher production rates and deliveries of resilient communication products. Space and airborne systems segment revenue was flat with growth in space systems and classified programs offset by lower volumes in our airborne combat systems business as we focus on negotiating appropriate business terms. Integrated Mission Systems revenue was also flat as higher volumes on maritime programs were offset by lower volume in our commercial aviation business. Aerojet Rocketdyne contributed almost $600 million of revenue for the second quarter. Turning to margins, CS reported margins of 24.4%, down slightly over the year, reflecting the timing of software sales and higher DOD revenue mix, which is first half-weighted as we've previously discussed. This was partially offset by LHX NeXt cost savings and the favorable net one-time impact of legal settlements. We continue to expect higher international mix and margin opportunity in the second half. In SAS, margin expanded 280 basis points to 12.6% as we continue to see progress on development programs maturing to production and realize the benefits of our LHX NeXt initiatives. IMS continues to make progress on program performance and LHX NeXt resulting in a margin of 11.9%, a 260 basis point increase versus the prior year. Consistent with a plan to rationalize our footprint outlined at Investor Day, we completed the consolidation of three facilities in this segment in the second quarter. Aerojet Rocketdyne reported margins of 12.9%, which included $22 million of amortization of purchase accounting adjustments. With the acquisition now one year behind us, we are wrapping up the purchase accounting period. With respect to the purchase accounting fair value adjustments for loss provisions and off-market contracts, I'll point out these reflect adjustments to baseline contract performance as of the date of acquisition and are not impacted by our subsequent operational improvements, which we expect to see continuing improvement from in our future margin profile. Simply, the adjustments reflect a more informed assessment of the state of legacy contracts as of the date of acquisition close. Finally, turning to guidance. Given our strong first half performance, we are increasing guidance for revenue, margin rate, and EPS, which we've outlined in our earnings release and presentation. We now expect EPS in the range of $12.85 per share to $13.15 per share, and we are reiterating free cash flow guidance of $2.2 billion. The increased guide for revenue, margin, and EPS incorporates solid growth and operational performance in the first half of the year, and a few more months of additional revenue from our commercial aviation business with the pending divestiture now expected to close in the second half. We're pleased with our performance through the first half of the year, highlighted by a year-to-date book-to-bill of 1.03, organic revenue growth of 3%, and sequentially increasing segment operating margin, and we remain confident in delivering on our commitments to customers and shareholders. Rob, let's open the line for questions.

Thank you. Our first question today comes from Peter Arment with Baird. Please proceed with your questions.

Yes, good morning Chris, Ken and Dan, nice results. Ken, maybe just ask on Aerojet, the margin performance in the first half continues to be really strong, but then you compare it to where the guide is for high 11% kind of implies margin step down. Maybe if you could just walk through that or just the thinking there, is it just conservative, or are there other things that maybe you just mentioned that we should understand? Thanks.

Sure, Peter. I appreciate the question. With respect to Aerojet, I would say, look, the business is performing well halfway through the year. We're happy about the margin performance. There's certainly some aspects of mix in terms of which programs are seeing the volumes at which point through the year as well as we performed in the first half, we were able to see some positive program performance that we've got to go do again in the second half of the year. So we feel good about how Aerojet Rocketdyne is performing. And it's been about a year since we've integrated this business, and we're continuing to learn more. I think you saw that the purchase accounting period ended as well. So we've got that kind of information behind us better informed with the improvements that we're making and how we're driving operational improvements in the business. And we'll work to continue to deliver on that in the second half and see if we can replicate what we did in the first half of the year.

Our next question comes from the line of Seth Seifman with J.P. Morgan. Please proceed with your questions.

Hey, thanks very much and good morning. Wanted to ask, I guess, Ken and maybe Chris, as well, when you gave the outlook and the targets at Investor Day it was, I think, about 100 basis points of margin improvement in each business. Now that we've seen starting off pretty well here through the first half of 2024, as you look out, if there are any refinements you might make in terms of how you see getting to that 16% margin and the contributions from the various businesses given how they performed so far and what you've been able to get out of the Aerojet’s next program?

Thank you, Seth. I appreciate it. Reflecting on our Investor Day and the midterm financial framework we established, we aim to reach $23 billion in revenue by 2026, with 16% margins and $2.8 billion in free cash flow during that period. Assessing our current position gives us greater confidence in achieving that framework. The businesses are performing well, and our focus on program excellence is yielding results. We have improved our guidance across segments, with increased SAS margins as well as improvements in IMS and CS. In the first half of the year, we've achieved a margin of 15.3%, up from 14.8% last year, indicating solid progress toward our 16% target. We feel optimistic and are incorporating that into our updated guidance, with improvements across three segments. We're also adjusting our margin expectations for the beginning of 2024 from about 15% to a range of 15.2% to 15.4%. We're making significant progress toward that framework and building our confidence quarterly. As we move through the year and into 2025, we aim to provide clearer updates on our progress, and we anticipate potential acceleration.

Our next question is from the line of Robert Stallard with Vertical Research Partners. Please proceed with your questions.

Thanks so much, good morning.

Good morning, Rob.

Chris, you mentioned that your margins are among the best in the defense industry, but looking at the second quarter numbers, it seems that your bookings and revenue growth are slightly lower compared to some of your competitors. I'm curious if this is a result of the discipline you've maintained regarding bidding terms and contracts, or if it's an unfair comparison just for this quarter.

Yes, Rob, it's tough to look at one quarter for a bookings or book-to-bill ratio for year-to-date. We're feeling pretty good as to what we've been able to book, had a great first quarter. So one quarter doesn't make a year. I think our portfolio is well positioned, and we're continuing to be disciplined in what we bid. And I think you're seeing that in the results, especially on the margin front. Some of the prior strategic decisions we made to invest and go after prime positions with SDA for satellites, maybe changing our waveform strategy, what we're doing with counter UAS with VAMPIRE winning billable watch. All those programs are starting to pay off. And as Ken mentioned, we've really upped our program management and execution with training new tools, hiring experienced hires externally where appropriate. And we talk about bidding discipline. Just making sure we have the right contract type. I think we were one of the first to come out and say we are not going to bid fixed-price development programs with options at the proposal process. And we're doing a lot better, getting the cost basis and asking for a reasonable fee. So we're taking our time, and we're negotiating. And I would expect the third quarter, we'll see a bump relative to the book-to-bill.

Our next question is from the line of Ron Epstein with Bank of America. Please proceed with your questions.

Hey, good morning guys. Chris, maybe just a big picture question. We just had the NATO Summit and the Royal International Air Tattoo about a week ago, Farnborough, it really does seem like spending in Europe is on the rise. We've seen that reflected in some of the defense equities in Europe. What opportunity does that create for L3Harris and maybe new markets or things that the European industrial base just can't do themselves? Can you talk about that a bit?

Absolutely. I actually was in attendance at the defense summit as part of the NATO Summit in D.C. with the various Ministers of Defense and international customer leadership. And it was a different tone than in the past. And I think you're hitting on an excellent point. I think most U.S. companies don't view Europe as a growth market or even much of a market because of the indigenous capabilities that exist. But the theme at the NATO Summit was all about interoperability and the need for these countries to either bundle acquisitions or have their products work and with the conflict in Ukraine, I think everybody sees the benefit of the interoperability, not only amongst the 32 member countries, which includes the U.S., but given the threat profile in Europe. So in our case, we look at our software-defined radios as a perfect example. I think we're uniquely positioned there and there was a lot of interest in that. And back at the envelope, we think this could be a 100,000 radio opportunity in the years ahead. So Europe is one of our larger markets that we're now going after for all the reasons you mentioned, Ron. And I think that's a nice upside for 2024 and it should give us some tailwind in the years ahead.

Our next question is from the line of Kristine Liwag with Morgan Stanley. Please proceed with your questions.

Hey, good morning Chris, Ken and Dan. So maybe wrapping up on the Ad Hoc business review committee, you mentioned that it completed its review. So can you provide any color to the extended recommendations it made and some of the findings. What is now the implementation plan and how is this different from the multiyear outlook you've given at the Investor Day?

Yes. Thanks for that question, Kristine. I'll just say I thought it was a good review. We all learned from the process, and I'd say all parties, both the members of the Ad Hoc business review committee and management benefited from the discussion and it has no change on our 2026 financial framework. And the ideas, suggestions, and discussions were beneficial, and we're already implementing some recommendations, and we'll continue to do so throughout the year.

Our next question is from the line of Myles Walton with Wolfe Research. Please proceed with your questions.

Thanks, good morning. I was hoping to maybe if you could, Chris, drill into the Communication Systems order trends and backlog as you see it sitting here today in the first six months and also from an international perspective, I think it was about flattish growth in the first half and DoD was more driving it and you're expecting, I think, that to shift in the second half. I'm just curious if the order trends are starting to accelerate on that front?

Yes. Thanks, Myles. As I said, we have about $32 billion in backlog, way up from when the company was formed five years ago. I guess I really see three major areas. The DoD modernization we've been talking about for quite some time. And if you go back, there was a basis of issue, what we call BOI to buy 480,000 radios from us and our competitors. To date, we've delivered 180,000. So there's still a 300,000 radio opportunity. And clearly, as these IDIQs have annual task orders we've been rather successful in winning our fair share or more than our fair share. And I expect that to continue. During the pandemic, we actually invested in capacity up in Rochester. We've come up with some new techniques. We have what we call our Smart cell, which is a different way of integrating radios. We've seen our yields improve. We're using a smaller footprint and it's really changing the way that we integrate our radios. We continue to invest in software. We have some new wave forms and I think it's important to remember, these are software-defined radios. So the hardware probably has a 10 to 15-year life. So there'll be a replenishment of that. But more importantly, there's a continuous demand for the software and the upgrade. So the DoD modernization as far as we can see continues to look good, the budgets will come out and they'll adjust the quantities based on that, but there's clear demand here in the U.S. I mentioned the NATO in an earlier question, again, we see a huge opportunity for NATO with that focus on interoperability, and we continue to have success around the globe with our software-defined radios and the whole focus on resilient comms. I think that's one of the lessons learned. There was a big difference between just being able to communicate and communicate in a resilient, protected fashion, and our networks are coming out as world-class in that regard. And I've alluded to our software and waveforms. We're continuing to see demand for our resilient wave forms. And this is one of two markets, it is either an upsell for a new software-defined radio or it's a licensing opportunity for the installed base. So just on CS, we have about a $16 billion pipeline looking out three years. As I mentioned, $10 billion international, the rest domestic. So we feel real good about the business and the growth potential and just to close off, we don't see any supply chain issues or constraints as we have in the prior years, which gives us even further confidence in the outlook.

Our next question is from the line of David Strauss with Barclays. Please proceed with your questions.

Thanks, good morning everyone. I wanted to see Chris, Ken, if you could maybe dig in to IMS margins a little bit. We've seen nice improvement here in the first half, but it looks like you're forecasting kind of flat to maybe down a little bit sequentially off Q2 in the second half. From what I remember from the Investor Day, the commentary was around that you would move through some of these fixed-price development programs in the second half of the year and if anything, we would start to see the margin improvement in the second half of the year, so if you could just maybe address IMS margins? Thanks.

Sure. Thanks, David. Appreciate it. From an IMS perspective, I would say a couple of things. One, we're really happy to see the performance that IMS has had in the first half of the year. I think the programs are performing well, and that's delivering solid margins for us and significant growth over the first half of 2023. In terms of the margin profile between first half and second half, a couple of things. One, we did have some favorable commercial mix in the first half in terms of electro optical, more kind of commercial type of business within IMS. And then we are starting to see the benefits of LHX NeXt cost savings; those should endure as well. But from a first half, second half perspective, I think it's two things. One, just the mix commercial. We are going to see growth in IMS in the second half. We talked a little bit about the first half within IMS having a little bit of growth headwinds with respect to ISR and some aircraft procurements in the first half of 2023. As that abates we may see some mix that moves a little bit more towards ISR, some of the businesses that aren't as highly profitable as some of the commercial businesses in there. But the fact of the matter is we've got to perform in the second half. I think our guide is solid. At IMS, we picked it up to low to mid-11%. We're sitting at 11.7% year-to-date. So I think building confidence in our IMS team and their ability to perform and biggest impact would be the mix as we look at the second half.

Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your questions.

Thank you. Good morning Chris and Ken. So maybe if we could talk about SAS on the top line and bottom line, what trends are you seeing in terms of ongoing growth in Space and Intel with the offset in airborne combat systems? And how do you think about the timing of airborne stabilizing and any context you could give us on the return hurdles you're deploying to have this disciplined profit fall through?

Alright, let me start and then maybe Ken can add some insights. Regarding space, I believe that serves as a good example of the benefits of our merger within our trusted disruptor strategy. As I’ve mentioned previously, we are the only company to have received Tranche 1 and Tranche 2 for the tracking layer, and the request for information for Tranche 3 has just been released. While the timing seems to be a bit slower than we hoped, we remain confident in our capacity to progress with the SDA. For the transport layer, we’ve adopted a strategy as a merchant supplier, so we’ll also have content on the transport layer once it’s awarded, and our classified work continues to be a strong point for us. The growth markets are space, intelligence, and cyber; these are our core strengths and where customer demand is centered. Additionally, our Mission Network FAA work is stable, experiencing low single-digit growth. However, as you noted, the airborne sector is facing challenges as many missions transition from air to space. We still maintain robust capabilities in mission systems, and if awarded, we have opportunities there, along with prospects in CCA. In the meantime, we continue to support the F-35, F-16, and F-18 programs. Overall, the narrative is one of growth in space and intelligence while the airborne sector remains stable or slightly declining due to our customers' strategies and acquisition methods.

Yes, Sheila, from a margin perspective, I would say as we look at SAS, I think the biggest contributor to margin performance in the first half really has been the implementation of the LHX NeXt program. I think the team there has really embraced the program worked really hard to get their cost structure where it needs to be and think about kind of how we deliver capability as we look forward. Secondly, I would say we did take on, and Chris mentioned a great example of it, which is SDA where we took on some challenging development work. It was a near adjacency moving out of high-resolution weather imagery into missile defense with similar sensors. And as we work through those development programs in 2023 and now we are moving into the production phase, so off of Tranche 0 into Tranche 1, increasing quantities and then starting to see some volume as we move into Tranche 2, I think it's a business model that's really starting to pay off for SAS. So feel good about not just the margin profile but I think importantly, some of the bets that we made, really starting to pay dividends in terms of our ability to perform and I think identifying the right bets to make with our limited resources. So feel good about SAS and in particular, I think, very strategic areas of growth in particular space and the Intel and Cyber business, much of which is classified, but real solid opportunity there, and we see, I think, a solid growing and performing business.

Our next question is from the line of Michael Ciarmoli with Truist Securities. Please proceed with your questions.

Hey, good morning guys. Thanks for taking the questions. Maybe Chris or Ken, just back to Peter's first question on Aerojet. It looks like second half of the year, the guidance implies, I think, maybe a 14% to 18% growth second half over first half. Ken, can you maybe talk about what the drivers are, is that more of the short-cycle volumes, I know you said you were really catching up on the past dues and then if you could just give us what the Aerojet book-to-bill was in the quarter?

Yes. Let me Michael, give a little bit of an overview on Aerojet because it's been a year since we closed and 18 months since we announced the deal. So I like to look at this acquisition, as I said, 18 months ago, strategically, operationally, and financially. So I'll give some highlights for the first two and then ask Ken to comment on your specific question. I will tell you, we're not going to disclose book-to-bill by segment at this time. So I appreciate the question, but you're not going to get an answer to that one. But strategically, I think as I've said before, and I'd say, again, I feel much better about this acquisition today than I did 12 months or 18 months ago. And it's clear that the demand is well in excess of the supply and you see that by lots of companies wanting to spend hundreds of millions or billions of dollars to enter this new market. So we are well, well positioned. And I think when I look at our portfolio, this is one of the faster-growing opportunities for L3Harris. Operationally, there were some serious challenges that we've talked about. We've upgraded the talent pretty much across the board. We've doubled our on-time deliveries in 12 months, and we literally have thousands of overdue deliveries that we've cut by 40% in 12 months; our project will be 60% reduced by the end of the year. So we have red-yellow-green programs. We're getting more and more green programs each quarter. The customer relation is great. The technology is a discriminator. I can go on that longer if someone wants to know, but we have two pulse solid rocket motors. We have liquid and solid divert attitude control systems, Hypersonics is a huge opportunity over the long term. And we're continuing to invest. We're breaking ground in Virginia next week on a new building. We've opened a couple in Camden. We have our hovens arriving later this month. We have new mixers coming in by the end of the year. So everything is paying off. We're investing our money. We're using DoD DPA money, we're using prime co-investment money and it's a great market, and we love working for our primes and supporting them in their ultimate missile deliveries. So I just thought I wanted to give that context as to how much progress we've made in 12 months. Ken, do you want to answer the financial questions?

Sure. Yes. In terms of the profile, Michael, I would say we've very clearly been focused, and we talked about this on previous calls, I believe, really focused on integrating Aerojet into L3Harris. We've overdelivered, I think, on the integration savings and now the team is really focused on the long-term health of the business, the operational improvements that Chris talked about. And we're really not trying to drive the business for any particular quarter results. I will mention, Aerojet is primarily on the cost-to-cost percentage of completion, basis. And as we look at the second half, we've seen as we're working with the supply chain that we should start to see some deliveries from our suppliers accelerate, which will drive some of the growth in the second half. And as we continue to see that business grow, I think that profile will continue to build for us, not just in the second half of 2024, but into 2025. So I think the business is being positioned very well. And as that work has been done and a great job by the Aerojet team in doing that, I think it really enables us to start to focus on to Chris' point, delivering product, working with the supply base, working on the facilitization, the equipment, the improvements that we're making and using that kind of as a baseline to start to drive the growth and the opportunities that we see in Aerojet. So I feel really good about that. But I would say the biggest thing is just really working with the suppliers and getting the product in the door so that we can get the critical capabilities out to our customers.

Our next question is from the line of Scott Deuschle with Deutsche Bank. Please proceed with your questions.

Hey, good morning. Chris, I appreciate the earlier comment on not disclosing book-to-bill by segment, but I always found that disclosure to be pretty helpful when I'm trying to do analysis around what future growth would look like. So I guess is that disclosure something you contemplate bringing back at some point or do you just view it as not being relevant anymore? Thank you.

Yes, Scott, it's Ken here. I would say from a growth perspective we're providing guidance for the year by segment. I think we've established a solid midterm financial framework with our growth of $23 billion in sales. In terms of how we guide and the timing of our information, we're comfortable with our current process and feel we've offered good transparency in our guidance across all segments. The book-to-bill metric can vary from quarter to quarter, so it's more meaningful to assess it on a long-term basis, which is why we focus on annual disclosures. This approach helps us avoid getting caught up in the details of any specific quarter. Regarding your question about book-to-bill at Aerojet, we have seen a few orders shift from the first half to the second half, but we're still expecting a solid book-to-bill for Aerojet for the full year 2024.

Our next question is from the line of Jason Gursky with Citigroup. Please proceed with your questions.

Great, thanks. One quick clarification question for you, Chris, and then I've got one for Ken. On the clarification, Chris, you mentioned that an RFI or maybe you said RFP, I'm not here on Tranche 3 just hit. Just kind of curious what the volume is going to look like on that compared to Tranche 2, whether it's flat, growing or shrinking? And then, Ken, for you, I was just curious to know whether the success that you're having with the cost take outs end up being a little bit temporal on the margin side of things, meaning that over time, you give some of that back. And I was wondering if you can just kind of help us kind of think through whether these margins expansion that you've seen here is just structurally higher or if we're sticking to the longer-term guidance because you're going to end up giving some of this back, the cost savings that is and I suspect this has an impact on revenue as well, particularly on your cost plus contracts, if there's any way you can kind of quantify the impacts of NeXt on margins temporarily and then what it does to your revenue growth, if anything? Thanks.

Sure. I'll address the question regarding SDA Tranche 3 first. There's an RFI that has been released, and we want to ensure we coordinate closely with our customer regarding its specifics. We're proud to be the only company that has successfully moved through Tranches 0, 1, and 2. We will analyze the RFI and respond accordingly, and we plan to bid when the RFP is issued. It seems that what was originally anticipated as a late 2024 acquisition might now occur in 2025. As for the quantity, I don’t have the exact figures, but I believe it will be similar to Tranche 2. The key question is whether they will retain three providers or reduce to two. We’re optimistic and feel we are making good progress on this program. Now, regarding the margin profile of LHX, we are definitely advancing the LHX NeXt program for several reasons, one being to create additional margin opportunities while also delivering value to our customers. This encompasses more than just cost savings; it also involves improving schedules and being responsive to our customers as a trusted partner. We estimate that around 40% of the estimated savings will contribute to our margin improvement. From the $1 billion in savings we discussed, this translates to about $400 million in potential margin benefits for us. We are committed to maximizing our savings and are progressing well towards our $1 billion target. At the time of the merger, we achieved about 50% to 60% of the expected integration savings. LHX NeXt is a longer-term program, spanning about three years, compared to the more immediate integration benefits. Because of this, we anticipate that a larger share of the savings will go back to the government, which will enhance our competitiveness and help us secure more business in the future. We will also look for opportunities to improve our margins, recognizing that some improvements may not directly stem from the program itself, but rather from returning cost savings to the programs that can enhance their future profitability. In summary, we are currently performing well with LHX NeXt, are ahead of schedule, and have more confidence now than we did a quarter ago. We will continue to strive to convert as much of this into margin opportunities as possible. Thank you, Jason.

Our next question is from the line of Richard Safran, Seaport Research Partners. Please proceed with your questions.

Chris, Ken, Dan, good morning. I dropped off for some reason so if you've answered this, I'll ask something else to ask you. I thought you had some pretty solid free cash flow in 2Q beating expectations. You took up your operational guide but you maintained your $2.2 billion free cash flow guide for the year. Just wondering if you're expecting some working capital headwinds in the second half or maybe baking in some conservatism due to some risk with collections in the second half, so I thought maybe you'd elaborate on that a little more?

Sure, Rich, I appreciate the question, and it's a new one, so thank you for that. For our free cash flow guidance, we are projecting $2.2 billion for the year. As we reach the midpoint of the year, we have achieved about 25% of our full-year target. This is a comfortable position for us, as it aligns with our typical performance at this stage. We anticipate generating a significant amount of cash in the second half, and we are confident in reaffirming the $2.2 billion guidance. We do not expect a significant working capital increase in the second half, but we need to collaborate with our customers to ensure timely payments and manage our supplier commitments effectively. In relation to Jason's question about LHX NeXt, we are working to build confidence in our guidance, which aligns with our 2026 financial framework: $2.2 billion in 2024, $2.4 billion in 2025, and $2.8 billion in 2026. Our focus is on enhancing our free cash flow as we grow the business and achieve our net leverage targets, ideally by the end of 2024. This will allow us to potentially shift more capital towards share repurchase, enhancing our free cash flow per share growth in 2025 and 2026. I feel optimistic about our trajectory and view this as a significant aspect of our story within the midterm financial framework. Thanks again for your question, Rich.

Our next question is from the line of Pete Skibitski with Alembic Global. Please proceed with your questions.

Yeah thanks, good morning guys. Hey Chris, going back years to L3, you guys had done a number of niche acquisitions in the unmanned space, especially unmanned maritime. And I believe all those units came over to L3Harris, but we haven't really heard about the focus on unmanned at L3. I'm just wondering, is that still an interesting area for you, I know that DoD is kind of still experimenting, trying to figure things out but is there anything chunky out there contract-wise that you're looking towards or still early days, just want to get your updated thoughts on that whole area?

Yes, Peter, that's a great question. The undersea and autonomy markets are both areas of growth for us. In the undersea segment, we're seeing a lot of activity related to sensors and classified work, which are not autonomous. We refer to that work as grotto, and there's a significant opportunity approaching, nearly $1 billion, where we're competing. This would be our third opportunity, as we've already won two contracts. It has the potential to be a major growth driver for our maritime sector. Regarding autonomy, we're performing well with our autonomous surface vehicles. The Navy is still in the process of developing its autonomous strategy, and in terms of unmanned undersea vehicles, they are relatively low-cost products. We are continuing to invest in this area. Our success with torpedo launch and recovery using unmanned undersea vehicles has been significant, representing a major advancement. While we could emphasize this more, the sales of these products—around 20, 30, or 40 units—don't amount to a large financial contribution, but they are essential for the mission, and we anticipate seeing export opportunities in the coming years. So this remains a part of our portfolio, and it continues to perform well. The lower price point of these products likely means they aren't impactful enough to merit extensive discussion, but we aim to increase our focus on them in the future.

The next question is from the line of Ken Herbert with RBC Capital Markets. Please proceed with your questions.

Hey, good morning Chris and Ken. Maybe I wanted to ask Chris on the CS segment, it sounds like there's going to be a nice mix shift for international in the second half. And you called out some pretty substantial opportunities as we think about tactical radios and other aspects of that market. But maybe can you just talk about the competitive landscape and to what extent you're seeing incremental price pressure there on the tactical communications side, in particular, and how you might be thinking about the opportunity to maybe take share, especially in international markets?

Yes, Ken. It's great to hear from you. Domestically, purchases are typically divided 60-40 or 70-30, and we generally secure the majority share. Internationally, however, it operates on a winner-take-all basis, and we have experienced significant success. Our offerings are relatively affordable compared to other weapon systems or products available, so pricing isn’t a major differentiator for us. We have a pricing strategy in place and understand our costs, allowing us to maintain reasonable margins in this business. We don’t intend to lower prices since our customers appreciate the value of our technology and its interoperability. We aim to negotiate fair business deals, and I feel confident in our direction. Additionally, we've successfully reduced costs through our LHX NeXt initiatives and are working with dual-source suppliers to avoid single points of failure, particularly in CS. I am optimistic about our portfolio and the market potential. While I won't mention specific countries, there are substantial opportunities in Europe currently navigating the FMS process, which positions us well for a strong second half of the year.

Rob, let’s take our last question.

So the last question will be from Gavin Parsons with UBS.

Thanks, good morning.

Good morning.

Guys, I just wanted to go back to the supplemental if you could give a little additional color. I think you'd said maybe there was going to be some additional radio revenue in there. Is that upside potential through the end of the year or into next year, is that more of a derisking factor for the guide?

Yes. It's built into the guide. And again, it's always hard to predict the actual quantity and timing and the congressional approval process. But a lot of that money for a variety of countries flows our way, either directly in the radios, a little bit on night vision goggles, and then indirectly through the solid rocket motors supporting the primes for the ammunitions. So I think that gives us confidence and stability in our guide. And as you suggest, some of this should roll into 2025 as we make the deliveries in the next 12 to 18 months. So with that, before we sign off, I always like to thank our employees for their hard work and dedication. We believe we're truly changing the industry, and I'm proud of what they've accomplished and we've accomplished in the last five years. We're very optimistic about the future, and we look forward to talking to everybody in the months ahead. So thanks for joining the call today. Have a good weekend.

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