L3harris Technologies, Inc. · NYSE:LHX
L3harris Technologies — Q1 2022 Earnings Presentation
48 slides from L3harris Technologies's earnings presentation, Apr 28, 2022
Slide 1: L3Harris Investor Overview
L3Harris Investor Overview Calendar 2022 Q1 Results Reported April 28, 2022 L3HARRIS L3Harris Investor Overview 1
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements in this presentation that are not historical facts are forward-looking statements that reflect management's current expectations, assumptions, and estimates of future performance and economic conditions. Such statements are made in reliance on the safe harbor pr
Slide 3: L3Harris Technologies overview
L3Harris Technologies overview L3Harris Technologies is an agile global aerospace and defense technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. 1 Segment 2 2 Revenue : 2 Adjusted EBIT : Adjusted FCF : operating margin : $17.2B 16% $3.4B $2.75B Creatin
Slide 4: Three well-positioned segments
Three well-positioned segments Integrated Mission Systems Space & Airborne Systems Communication Systems ISR: Advanced integrated signals, Space: Payloads, sensors, and full-mission Tactical Communications: Tactical radios for communications, and electronic intelligence and solutions for intelligenc
Slide 5: A leading financial profile
A leading financial profile Leading margin with expansion …and among the highest cash opportunity… conversions versus peers 16.00 - 16.25% 111% 93% 11.8% 11.0% 10.8% 10.8% 2022 FCF 2022 Segment operating conversion5 109% margin4 87% 70% LHX LHX guide guide Strong balance sheet… …with pension relativ
Slide 6: Strategic focus areas
Strategic focus areas Grow revenue…innovate, disrupt, and expand Drive high performance culture and expand margins Disciplined allocation of capital L3HARRIS L3Harris Investor Overview 6
Slide 7: A growing need for L3Harris offerings
A growing need for L3Harris offerings… Threats rapidly accelerating… …and in key international markets… 9 NATO Budget excluding U.S. ($B) 2% GDP $364 Target $302 $326 $300 1.7% 1.5% 1.5% 1.7% 2018 2019 2020 2021e …driving demand for agile, advanced, …with budgets8 rising domestically… and affordable
Slide 8: Networks and multi-domain operations
…As “The Trusted Disruptor” with leading positions in all domains 2021 Organic Revenue Air ~$7.5B • Signals intelligence (SIGINT) • Multi-function processing • Electro-Optical / Infrared • Electronic warfare turrets • Datalinks and waveforms Networks and multi-domain operations Communication Systems
Slide 9: Positioned to navigate a shifting revenue environment
Positioned to navigate a shifting revenue environment Invest in innovation Bid, win, and “prime” more programs Expand internationally Industry-leading R&D investments driving Broad and advanced capabilities… Demand for L3Harris capabilities… internal capabilities… Aircraft Soldier Missionization Mod
Slide 10: Stable and rising margins ahead
Stable and rising margins ahead …with e3 driving next phase of cost Upward trajectory to-date… opportunities 16.00 - 16.25% 16.0% 15.5% Facility consolidation Overhead Supply chain management savings 14.4% Program & ERP engineering reduction excellence Segment operating margin12 Shared Quality servi
Slide 11: Cash generation to remain robust
Cash generation to remain robust Efficient cash conversion… …with supportive outlook ($billion) Free cash 2.75 flow13 (FCF) 2.7 R&D tax capitalization • Continued EBIT growth L3 pre- merger adjusted 0.4 FCF 2.15 - 2.25 • Opportunity to reach ~40 days of working capital from 52 at CY21 year-end…focus
Slide 12: Disciplined allocation of capital
Disciplined allocation of capital ($billion, except share count in millions) Dividends • Announced 10% increase in February 2022…4th 0.8 raise since merger 0.7 • Target dividend at 30-35% payout of FCF over 0.5 medium-term • Further dividend increases ahead CY19 CY20 CY21 CY22 Guide Share Repurchase
Slide 13: Multiple levers for growth and value creation
Multiple levers for growth and value creation Cash generation and Top-line growth Margin expansion efficient capital allocation • R&D spend driving • Operational excellence • Continued EBIT growth internal innovation acceleration • Working capital and • Investments in external • Factory optimization
Slide 14: Integrated Mission Systems
Integrated Mission Systems L3HARRIS L3Harris Investor Overview 14
Slide 15: Integrated Mission Systems overview
Integrated Mission Systems overview Segment financials17 Drivers supporting medium-term growth • Geopolitical conflict and tighter budgets increase global demand Segment operating 13.5% 13.50 - 13.75% 9,000 12 14.0% for affordable ISR solutions margin 12.6% • Advances in missionized business jets an
Slide 16: Discriminating signals intelligence, communications, and modernization capability
Discriminating signals intelligence, communications, and modernization capability The world’s most advanced ISR Aircraft ~25 Aircraft $800M-$1B/ RC-135 year USAF Rivet Joint Special Purpose Aircraft International (UK and KSA) Rivet Joint Signals Intelligence The nation’s highest priority missions ~5
Slide 17: Expanding airborne ISR…building off leading position
Expanding airborne ISR…building off leading position Current Future Premier Signals Intelligence and Electronic Warfare capability Calidus B250 International ~$600M / year • 60+ years premier airborne SIGINT mission system integration and Multi-Modal operations (Rivet Joint) Targeting Platforms MENA
Slide 18: A range of offerings within the sea domain
A range of offerings within the sea domain Constellation-class Frigate Communication Systems Acoustic total program value: ~$1B Sensors 20 ships + development + services Mast Mounted Steering Aviation Bridge and Sensors Controls Systems Navigation Power Management Systems Flight Deck Equipment Hybri
Slide 19: Systems provider to systems integrator on maritime platforms
Systems provider to systems integrator on maritime platforms… Maritime opportunity driven by: • Higher content on new ship classes • Evolving Systems Integrator role Saudi Future Frigate Indigenous Defensive • Growth in size of U.S. Navy Submarine • International expansion • Airborne ISR to Maritime
Slide 20: Unique unmanned, seabed acoustics, and network capabilities
…with unique unmanned, seabed acoustics, and network capabilities Discriminating capability: Joint All Domain Command • Over 100 L3Harris USV’s operating around the world in and Control survey, maritime security, and mine counter measures Resilient Naval Networks • Commanding lead in autonomy Snakeh
Slide 21: Expanding reach of Electro-Optical capabilities
Expanding reach of Electro-Optical capabilities Driving growth through: • Differentiating capabilities: Extensive service footprint, proven reliability, superior performance, and global product portfolio • New platform captures Saudi High-Speed Shipboard Panoramic Interceptor (HSI) Electro-Optical •
Slide 22: Precision Engagement provides leading capabilities
Precision Engagement provides leading capabilities Supporting the battlefield today… …and driving future capability Weapons High Performance Advanced Mission Systems Sensors ISR Sensors Multi-Function Apertures • Converges Radar, EW, SIGINT, and Communications • Enterprise-wide applications • Leader
Slide 23: Stabilizing commercial aerospace exposure
Stabilizing commercial aerospace exposure Significant downturn for air traffic in 2020, …LHX managed headwind via right-sized cost with stability in 2021… structure to position for continued recovery Revenue of $400M+ on a LTM basis Traffic Collision Recorders Avoidance • Optimized cost structure…fa
Slide 24: Space & Airborne Systems
Space & Airborne Systems L3HARRIS L3Harris Investor Overview 24
Slide 25: Space & Airborne Systems overview
Space & Airborne Systems overview Segment financials17 Drivers supporting medium-term growth • Space, air, and cyber domains remain priorities to counter near- Segment operating 13.1% peer threats 12 8,000 margin 12.8% 12.50 - 12.75% • Space transitioning to warfighting domain…enhanced focused on le
Slide 26: Space threats require a resilient and responsive architecture
Space threats require a resilient and responsive architecture Exquisite Solutions 750 550 Responsive Solutions 60-year legacy of providing Augmenting Exquisite Systems high performance mission Weather with rapid delivery of end-to-end payloads mission solutions ISR WON PNT PNT Antennas GOES-R Next-G
Slide 27: Customer acquisition strategies centered on mission capabilities
Customer acquisition strategies centered on selecting the mission capabilities, not the platform INTELLIGENCE, SURVEILLANCE, & RECONNAISSANCE WON WON • Over 60 years delivering high priority mission solutions • Leading EO/IR and RF mission payload provider WON Classified • Leading provider of reflec
Slide 28: Driving to full operational constellations and rapid factory production
Driving to full operational constellations and rapid factory production INTELLIGENCE, SURVEILLANCE, & RECONNAISSANCE SATELLITE DELIVERIES ~$4B PER YEAR Radio Full Mission 50+ 45 Frequency 4x Electro 40 Optical Full Mission 50+ 35 Radio Full Frequency Mission 10+ 30 25 POSITION, NAVIGATION, & TIMING
Slide 29: Modernizing existing platforms and creating advanced capabilities
Modernizing existing platforms and creating advanced capabilities for future platforms $10B+ $6B+ NEXT-GENERATION PLATFORMS INTEGRATED MULTI-DOMAIN NETWORKS Open architecture modular electronics Small form electronics enabling networked distributed ops Software- Advanced Smart Displays Communication
Slide 30: Cyber capabilities to counter hardened problem set
Cyber capabilities to counter hardened problem set Design, build, and operate solutions for the most complex cyber and intelligence needs Strategic Missions • 2,500 employees, 5 countries • 30 years mission experience Complex mission solutions for classified customers • Intelligence, defense, and la
Slide 31: Leveraging trusted FAA partnership and performance
Leveraging trusted FAA partnership and performance 20+ years delivering resilient and secure …combine to enable growth infrastructure “as a service”… LHX owned and operated infrastructure Strong pipeline of opportunities COMMUNICATIONS FTI recompete, FENS (FAA Enterprise Network Services) DoD cross-
Slide 32: Communication Systems
Communication Systems L3HARRIS L3Harris Investor Overview 32
Slide 33: Communication Systems overview
Communication Systems overview Segment financials17 Drivers supporting medium-term growth 24.3% 24.25 - 24.50% 5,500 Segment operating 12 23.5% margin 5,000 • Increased focus on warfighter effectiveness and resilient communications 4,402 up 2.0 - 4.0% 4,500 4,287 • Ramping multi-billion-dollar U.S.
Slide 34: Global leadership
Global leadership ($billion) Historical growth in L3Harris …led to L3Harris as #1 provider Tactical Communications21… globally 1.8 1.8 1.7 1.4 1.4 1.3 1.3 0.8 1.3 1.3 0.8 1.2 All others 0.9 All others Harris 39% L3Harris International 0.7 45%+ 0.9 0.8 0.9 0.9 0.8 0.8 1.0 0.9 0.8 ~$3.5B Domestic 0.7
Slide 35: #1 position driven by commercial model
#1 position driven by commercial model Commercial business model… … enabled competitive edge 1 Global customer intimacy • Anticipating and driving requirements • Extensive distribution network • Large installed base 1 2 2 Continuous innovation • Investment of internal R&D…supports opportunities to e
Slide 36: Executing on well-funded DoD modernization priority
Executing on well-funded DoD modernization priority… DoD Tactical Radio modernization spend set to …with LHX awarded positions on all major be ~$8B through mid-decade… U.S. tactical radio contracts24 ($million) $390M SOCOM Tactical Comms IDIQ 2-channel multiband handheld Single-award $552M SOCOM Tac
Slide 37: Maintaining international leadership
…and maintaining international leadership L3Harris’ growing share of the …with multi-billion-dollar Growth strategy international installed base25… modernization pipeline25 (Thousands of tactical radios) • Drive global refresh and 380 modernization leveraging incumbency / local partnerships • Captur
Slide 38: Tightly managing supply chain delays
Tightly managing supply chain delays Global supply chain disruptions creating …but outlook reinforced by strong shortages for electronic components… backlog26… • Demand for LHX products remains strong...no anticipated • Sourcing environment for global electronic impact to bookings nor win-rates at T
Slide 39: Incumbency position and technology in broadband communications
Incumbency position and technology in broadband communications… Leverage strong incumbent position in …to drive spectrum superiority networked communications and integration… Primary platforms driving ~$1B in annual revenue Assured Communications Advanced tactical datalinks, networked-collaborative
Slide 40: Integrated & networked vision market
…and integrated & networked vision market L3Harris has grown into an industry leader… • Leading edge Night Vision technology • Full suite of electro-optic / infrared day / night fighting equipment for the soldier • Bundled portfolio solutions for U.S. DoD and trusted allies • Integrated warfighter s
Slide 41: ESG
ESG L3HARRIS L3Harris Investor Overview 41
Slide 42: L3Harris committed to ESG
L3Harris committed to ESG Environmental Social Governance 2026 Goals27 Dedicated to fostering a diverse and inclusive Board of Directors elected annually by work environment… shareholders ~ 50% 12 of 14 directors are independent 30% 2021 Long-term ~ 33% Diverse mix of backgrounds, skills, and go
Slide 43: First Quarter Calendar 2022 Results
First Quarter Calendar 2022 Results L3HARRIS L3Harris Investor Overview 43
Slide 44: L3Harris 1Q22 financials and full-year 2022 guidance
L3Harris 1Q22 financials and full-year 2022 guidance L3HARRIS L3Harris Investor Overview 44
Slide 45: Endnotes
Endnotes 12021 organic revenue, business mix (Prime / Sub, Cost Plus / Fixed Price), and customer revenue (DoD, International, Other) exclude revenue attributable to divested businesses in 2021; refer to non-GAAP financial measure (NGFM) reconciliations and disclosures in quarterly earnings material
Slide 46: Endnotes (continued)
Endnotes (continued) 15CY19 average diluted shares is on a pro-forma basis; CY22 guidance initially provided January 31, 2022; refer to quarterly earnings and related materials on the L3Harris investor relations website 16Net Debt / EBITDA is a non-GAAP financial measure (NGFM); refer to NGFM reconc
Slide 47: Regulation G Disclosures
Regulation G Disclosures To supplement our condensed consolidated financial statements presented in accordance with U.S. generally accepted accounting principles (GAAP), we provide additional measures of income from continuing operations per diluted common share, net income, net income margin, net c
Slide 48: Reconciliation of Non-GAAP Financial Measures – Net Debt to Adjusted EBITDA Ratio
Reconciliation of Non-GAAP Financial Measures – Net Debt to Adjusted EBITDA Ratio Net Debt to Adjusted EBITDA Ratio (Dollars in millions) December 31, 2021 Short-term debt $ 2 Current portion of long-term debt, net 11 Long-term debt, net 7,048 Total debt 7,061 Less cash and cash equivalents 941 Net
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