L3harris Technologies, Inc. · NYSE:LHX
L3harris Technologies — Investor Presentation (September 2020)
47 slides from L3harris Technologies's investor presentation, September 2020
Slide 1: Fiscal Calendar 2020 Reported Q2 Results
FISCALCALENDAR 2020REPORTED 2019 Q4 RESULTS Q2 RESULTS JULY 31, 2019 REPORTED JULY 31, 2020
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 pro
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 1,2 1,3 Revenue : EBIT : FCF : $18.1B $3.0B $2.5B Creating a leading global defense technology company Di
Slide 4: Segment descriptions
Segment descriptions Integrated Mission Space & Airborne Communication Aviation Systems Systems Systems Systems Tactical Comms: Radio Space: Payloads, sensors, and full- communications, SATCOM Defense Aviation Products: ISR: Advanced COMINT, ELINT mission solutions terminals and battlefield Precisio
Slide 5: Financial profile
Financial profile Leading margin with expansion …and high cash conversion opportunity… versus peers 17.5% + 14.8% 98% 90% 2020 13.6% 108% 11.0% 2020 FCF adjusted conversion2 margin1 7.6% 83% 52% LHX guide LHX guide Healthy balance sheet… …with pension relatively well-funded LHX 84% 1.1x 1.9x 82% 201
Slide 6: Strategic priorities
Strategic priorities Execute seamless integration…$300M net / $500M gross in cost synergies Drive flawless execution and margin expansion…e3 operational excellence Grow revenue…invest in differentiated technology and innovation Reshape portfolio to focus on high margin, high growth businesses Maximi
Slide 7: Execute seamless integration
Execute seamless integration… Cumulative Cost Synergies ~$300M net (~$500M gross) Functional Expanded shared services for IT and Finance efficiencies, OH reduction & Leverage scale for lower employee benefits cost shared services $250M net (~$415M gross) Merged CHQ headquarters Corporate and segment
Slide 8: Drive operational excellence to achieve best-in-class margins
…and drive operational excellence to achieve ‘best- in-class’ margins Margin expansion… …through operational excellence and 18.0%+ flawless program execution 17.5%+ 16.6% 15.0% Every employee engaged in sustained, EBIT continuous improvement delivering margin* better business performance and improve
Slide 9: Maintain industry leading R&D with focus on core capabilities
Maintain industry leading R&D with focus on core capabilities and open systems… R&D spend as a ~3.8% LHX % of revenue Peer 2.8% 2.5% 2.2% 1.2% % of R&D Technology spend Advanced Capabilities Growth Franchises Spectrum Technology used to operate, obstruct, observe Command & control, Superiority ~40%
Slide 10: Well aligned with growing DoD budget line items
…well aligned with growing DoD budget line items 3 year CAGR (GFY18-21)1 ~$135B gap between investment account Defense Budget budgets and outlays over the past three years… 2% $691B to $741B driving sustainable growth over medium-term F-35 (Qty)2 Executing against multi-year block buy and 90 to 91 A
Slide 11: Portfolio shaping is progressing well
Portfolio shaping is progressing well Providing clarity on portfolio shaping • 8-10% of revenues anticipated to be divested over time with ~1/3 complete 2019 Revenue 8-10% to be – Airport Security and Automation assets closed May ~$18.0B divested 4, 2020 for ~$1B, representing ~$500M in annual sales
Slide 12: Shareholder friendly capital deployment
Shareholder friendly capital deployment Robust free cash flow1… …and capital returns ($billion) ~3.0 Dividends 2.60 - 2.70 2.46 Increased ~25% since merger, including 13% in Q1 2020 1.93 1.80 Dividends Share repurchases $1.7B share buyback forecasted in 2020 (including proceeds from divestitures) CY
Slide 13: Integrated Mission Systems
Integrated Mission Systems L3HARRIS Investor Briefing 13
Slide 14: Overview of Integrated Mission Systems
Overview of Integrated Mission Systems Segment financials and key customers Industry trends supporting ($million) 13.50%+ long-term growth 7,000 13.0% non-GAAP 6,500 operating 6,000 up 5.5 - 7.0% margin 5,360 5,500 Geopolitical conflict driving strong budget support…increasing global demand for 5,00
Slide 15: Expanding aircraft missionization & modernization
Expanding aircraft missionization & modernization Maintain incumbency on core Expand platforms within the Grow international presence platforms DoD Develop, deliver, and sustain the highest performing & responsive multi-mission Unmanned ISR and communications systems Compass Call Cross Deck Transpor
Slide 16: Strong position in fast growing Electro-Optical & Infrared Systems market
Strong position in fast growing Electro-Optical & Infrared Systems market Global surveillance needs driving LHX has grown into a market leader… market expansion • Best in class performance and reliability • Consistent reputation as technology EO/IR Sensor innovator Addressable Market • More than 5,0
Slide 17: Domain leader for secure, effective and resilient maritime operations
Domain leader for secure, effective and resilient maritime operations Expand core… …invest in unmanned …deliver readiness via …and expand as the next franchise… integrated services… internationally Leading manufacturer & integrator of Create the next generation Position as holistic maintenance Lever
Slide 18: Space & Airborne Systems
Space & Airborne Systems L3HARRIS Investor Briefing 18
Slide 19: Overview of Space & Airborne Systems
Overview of Space & Airborne Systems Segment financials and key customers Industry trends supporting ($million) 6,000 18.6% ~18.75% long-term growth non-GAAP 5,500 operating up 6.0 - 7.5% Space transition from safe-haven to theater-of- margin 4,689 5,000 4,500 war…need for dis-aggregated solutions 4
Slide 20: Capitalize on strong demand in a robust classified environment
Capitalize on strong demand for L3Harris broad solutions in a robust classified environment Increasing threats driving higher Focus and execute on high-value programs… intelligence budgets …supporting command ($billions) and control, missile 86 85 80 79 82 82 warning, defense, and 76 76 73 space sur
Slide 21: From exquisite payload provider to small sat end-to-end solutions
Leveraging capabilities from exquisite payload provider to small sat end-to-end solutions Responsive Satellite End-to-End Solutions Hosted Payloads Exquisite Payloads & Subsystems Exquisite Technology Enablers Fully integrated modular RF SmallSat and supporting ground station RF Payload, Mission Mgm
Slide 22: Accelerate growth in Avionics
Accelerate growth in Avionics Strong position on F-35… …and global leadership in carriage and release systems Potential opportunities Won F/A-18 LAUNCHING SYSTEM FOR SDBII PIC PIC Infrastructure Components Multi-function Smart Weapon Advanced Data Racks Link (MADL) P-8 SONOBUOY LAUNCHING SYSTEM PIC
Slide 23: Extend electronic warfare position and develop next-generation technology
Extend electronic warfare position on long term platforms and develop next-generation technology 50-year history; strong incumbency on platforms …while investing in future EW systems for with long modernization tails… variety of platforms = opportunity $M Platforms ANALOG Hardware Defined Stove-Pipe
Slide 24: Communication Systems
Communication Systems L3HARRIS Investor Briefing 24
Slide 25: Overview of Communication Systems
Overview of Communication Systems Segment financials and key customers Industry trends supporting ($million) long-term growth 6,000 ~23.75% 22.4% non-GAAP 5,500 Global security issues; increased focus on operating margin 5,000 up 3.5 – 5.0% warfighter readiness supported by strong budget 4,500 4,278
Slide 26: Global leadership
Global leadership ($billion) Historical growth in LHX …led to LHX as #1 provider in tactical… DoD and international 1.7 1.7 1.7 1.6 1.6 1.4 1.4 1.3 0.5 0.5 1.3 1.3 1.3 0.5 1.3 0.7 1.2 0.9 0.4 Allothers All others Harris L3Harris 1.0 0.7 39% 0.9 40%+ 0.8 0.9 0.9 0.8 0.3 0.8 0.7 1.2 0.5 0.3 1.1 1.1 1.
Slide 27: #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 resources • Leverage common
Slide 28: Executing on well-funded DoD modernizations
Executing on well-funded DoD modernizations… DoD Tactical Radio-related budget increased to …with LHX awarded positions on all major U.S. ~$8B over the next 5 years, up $1B versus tactical radio contracts GFY20 FYDP… ($million) $390M IDIQ SOCOM Tactical Comms (STC) Single-award 2-channel multiband h
Slide 29: Maintaining international leadership
…and maintaining international leadership L3Harris’ growing share of the …increasing baseload Growth strategy international installed base… revenue over time (Thousands of tactical radios) Revenue mix Penetrate new customer segments, increase share…Special Forces to Army, Air Force 345 Expand footpr
Slide 30: Expand into near adjacencies
Expand into near adjacencies Tactical radio Airborne radios and ISR segments • Growing demand for manned and unmanned Raven aerial platforms Manned Unmanned • Leverage position on legacy Exelis ARC-201 platform Tactical ISR Small Tactical • Interoperability with L3Harris ground tactical Radio Small
Slide 31: Strong incumbency position and technology in Broadband Communications
Strong incumbency position and technology in Broadband Communications… Leverage strong incumbent position in networked communications and integration… …to drive spectrum superiority Primary platforms driving ~$1B in annual revenue Assured Communications Advanced tactical datalinks, networked- collab
Slide 32: Integrated & networked vision market
…and integrated & networked vision market Strong market at the beginning LHX has grown into an industry of a modernization cycle leader… ($billion) Leading edge Night Vision technology Full suite of EO/IR day/night fighting equipment for the dismounted warfighter Bundled portfolio solutions fo
Slide 33: Aviation Systems
Aviation Systems L3HARRIS Investor Briefing 33
Slide 34: Overview of Aviation Systems
Overview of Aviation Systems Segment financials and key customers Industry trends supporting ($million) long-term growth 12.8% ~13.25% non-GAAP6,000 operating margin 5,000 3,917 Emerging near-peer threats driving demand for 4,000 down 1.0 – 5.0%2 next generation weapon systems 3,000 2,000 Revenue He
Slide 35: Defense Aviation Products enhance the battlefield
Defense Aviation Products enhance the battlefield Supporting the battlefield today… …and driving future capability Multi-Function Apertures Weapons Range and Test • Converges Radar, EW, SIGINT & Sensors Solutions Communications • Enterprise-wide applications • Leader in defining the open system stan
Slide 36: Leveraging 25-year trusted FAA partnership to grow air traffic management
Leveraging 25-year trusted FAA partnership to grow air traffic management franchise Strong performance on FAA …and FAA NextGen Telecommunications programs… …positions us well for… Infrastructure (FTI)… (select programs) Early FAA successes led to FTI 1. FTI program recompete, FENS (FAA DATA COMM Ent
Slide 37: Managing the downturn in Commercial Aerospace
Managing the downturn in Commercial Aerospace Significant downturn forecasted for air traffic… 7.4% 8.0% 6.5% 4.2% Global air traffic …however, LHX well positioned to Growth 2016 2017 2018 2019 1Q20 2Q20 3Q20 4Q20 manage headwinds (63%) Source: IATA data and analyst estimates • Top tier growth in de
Slide 38: Integration
Integration L3HARRIS Investor Briefing 38
Slide 39: Significant working capital improvement opportunities exist
Significant working capital improvement opportunities exist 1Excludes impact of divestitures and accounting related adjustments L3HARRIS Investor Briefing 39
Slide 40: Potential revenue synergies
Potential revenue synergies Penetrate new markets Avionics Enhanced resource usage, lower SWaP and Multi-function interoperability open architecture Strengthens offering for existing refresh opportunities and next-gen platforms Open systems processor Multi-function phased array Electronic Warfare Ex
Slide 41: Optimizing best-in-class R&D spend
Optimizing best-in-class R&D spend Analyzed combined R&D spend… Increase efficiency through Dev Ops… …and instrumenting the business to improve performance …to improve effectiveness • Redeployed ~10% of R&D spend • ~1/2 from overlapping projects • ~1/2 from alternate funding and strategic realignmen
Slide 42: Created significant value by focusing on operational excellence
Created significant value by focusing on operational excellence 1 Night Vision…transformational turnaround 2 SENSOR…prime award on next-gen contract ~96% 90% 83% Top line Declining revenue Up mid teens guidance • Revenue up 24% • Improved customer 50% Quality ~65% yield rates ~90% satisfaction 33% •
Slide 43: Key investment themes
Key investment themes Stronger platform for long-term revenue growth Creates scale with a well-balanced portfolio Accelerates innovation and time to market Shared operating philosophy to continue driving margin expansion Focus on operational excellence and structural cost reduction Meani
Slide 44: Second Quarter Calendar 2020 Results
Second Quarter Calendar 2020 Results L3HARRIS Investor Briefing 44
Slide 45: Solid 2Q20 financials
Solid 2Q20 financials1 ($million, except per share amounts) 1Comparisons are to prior-year pro forma or adjusted pro forma results; "pro forma" refers to the applicable prior-year result in the pro forma condensed combined income statement information (prepared in a manner consistent with Article 11
Slide 46: 2020 full-year guidance
2020 full-year guidance 1Compared with prior-year pro forma revenue; "pro forma" refers to the applicable prior-year result in the pro forma condensed combined income statement information (prepared in a manner consistent with Article 11 of Regulation S-X) included in L3Harris’ Current Report on For
Slide 47: COVID-19
COVID-19 As communicated in connection with the company’s release of financial results for the first quarter of 2020, L3Harris’ response to the COVID-19 pandemic and attempts to contain it, such as mandatory closures, “shelter-in-place” orders and travel restrictions, which have caused significant d
L3Harris Technologies — Investor Presentation (September 2020) on 6ix