L3harris Technologies, Inc. · NYSE:LHX
L3harris Technologies — Q4 2021 Earnings Presentation
48 slides from L3harris Technologies's earnings presentation, Jan 31, 2022
Slide 1: L3Harris Investor Overview
L3HARRIS INVESTOR OVERVIEW CALENDAR 2021 Q4 RESULTS REPORTED JANUARY 31, 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 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. 2 2 Revenue1: Segment margin: LHX EBIT : FCF : $17.2B 16% $3.4B $2.75B Creating a leading global defense te
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 intelligence
Slide 5: A leading financial profile
A leading financial profile Leading margin with expansion …and high cash conversion opportunity… versus peers 16.00 - 16.25% 107% 92% 11.7% 11.0% 10.9% 10.6% 2022 FCF 2022 Segment conversion2 109% margin1 86% 70% LHX LHX guide guide Strong balance sheet… …with pension relatively well-funded LHX 96%
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… …drive demand for agile, advanced, and Threats rapidly evolving… affordable solutions Resilient Communications Resilient Space …and DoD budgets1 plateauing with competing priorities… Networked and Multi- ISR capabilities $billions 740 Function Systems2 ~690 ~29
Slide 8: Networks and multi-domain operations
…As “The Trusted Disruptor” with leading positions in all domains 2021 Organic Revenue Air ~$7.5B • Signals intelligence (SIGINT) • Multi-function processing • Electro-Optical / Infrared • Electronic warfare turrets • Datalinks and waveforms Networks and multi-domain operations Communication Systems
Slide 9: Positioned to navigate a shifting revenue environment
Positioned to navigate a shifting revenue environment Invest in innovation Bid, win and “prime” more programs Expand internationally Industry-leading R&D investments driving Broad and advanced capabilities… Demand for L3Harris capabilities… internal capabilities… Aircraft Communication Missionizatio
Slide 10: Stable and rising margins ahead
Stable and rising margins ahead …with acceleration of e3 driving next phase Upward trajectory to-date… of cost opportunities 16.00 - 16.25% 16.0% 15.5% Facility consolidation Overhead Supply chain management savings 14.4% Program & ERP engineering reduction excellence Segment margin1 Shared Quality
Slide 11: Cash generation to remain robust
Cash generation to remain robust Efficient cash conversion… …with supportive outlook ($billion) Free cash 2.75 flow1 (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 20% increase in January 2021…3rd 0.8 raise since merger for ~50% cumulative increase 0.7 • Target dividend at 30-35% payout of FCF over 0.5 medium-term • Significant dividend increases ahead CY19 CY20
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 financials Drivers supporting medium-term growth • Geopolitical conflict and tighter budgets increase global demand Non-GAAP 9,000 13.5% 13.50 - 13.75% for affordable ISR solutions 12.6% 14.0% segment margin 1 8,000 • Advances in missionized business jets
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 ~50
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: Mission system provider and integrator
Mission system provider and integrator U.S. Navy surface ship and submarine programs 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 Mana
Slide 19: Maritime platforms
Maritime platforms From systems provider to systems integrator for U.S. and international navies Maritime opportunity driven by: • Higher content on new ship classes • Evolving Systems Integrator role • Growth in size of U.S. Navy Saudi Future Frigate Indigenous Defensive Submarine • International e
Slide 20: Maritime capability
Maritime capability Unmanned, seabed acoustics and naval networks Discriminating capability: Joint All Domain Command • Over 100 L3Harris USV’s operating around the world in and Control (Navy) survey, maritime security, & mine counter measures - no one else has as much experience Resilient Naval Net
Slide 21: Expanding Electro-Optical capabilities
Expanding Electro-Optical capabilities Land, Maritime, Unmanned domains 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
Slide 22: Defense Aviation enhances the battlefield
Defense Aviation enhances the battlefield Supporting the battlefield today… …and driving future capability Weapons High Performance Advanced Mission Systems Sensors ISR Sensors Multi-Function Apertures • Converges Radar, EW, SIGINT & Communications • Enterprise-wide applications • Leader in defining
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 Recorders Traffic Collision 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 financials Drivers supporting medium-term growth • Space, air and cyber domains remain priorities to counter near-peer Segment 13.1% threats 8,000 12.8% 12.50 - 12.75% margin 7,000 • Space transitioning to warfighting domain…enhanced focused on leading paylo
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 selecting the mission capabilities, not the platform
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 reflect
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 45 Frequency Full Mission 50+ 4x 40 Electro Optical Full Mission 50+ 35 Radio Full Frequency Mission 10+ 30 25 POSITION, NAVIGATION, & TIMING ~
Slide 29: Modernizing existing airborne platforms for the fight, while creating advanced capabilities for future platforms
Modernizing existing airborne platforms for the fight, while creating advanced capabilities for future platforms $10B+ $4B+ NEXT-GENERATION PLATFORMS INTEGRATED MULTI-DOMAIN NETWORKS Open architecture modular electronics Small form electronics enabling networked distributed ops Software- Advanced Sm
Slide 30: Cyber capabilities to counter hardened problem set
Cyber capabilities to counter hardened problem set Design, build, and operate solutions for the most complex cyber and intelligence needs Strategic Missions • 2,500 employees, 5 countries • 30 years mission experience Complex mission solutions for classified customers • Intelligence, defense, and la
Slide 31: Leveraging trusted FAA partnership and performance
Leveraging trusted FAA partnership and performance 20+ years delivering resilient and secure …combine to enable growth infrastructure “as a service”… LHX owned and operated infrastructure Strong pipeline of opportunities COMMUNICATIONS FTI recompete, FENS (FAA Enterprise Network Services) DoD cross-
Slide 32: Communication Systems
COMMUNICATION SYSTEMS L3HARRIS L3Harris Investor Overview 32
Slide 33: Communication Systems overview
Communication Systems overview Segment financials Drivers supporting medium-term growth 24.3% 24.25 - 24.50% 5,500 Segment 23.5% margin 5,000 • Increased focus on warfighter effectiveness and resilient communications 4,402 up 2.0 - 4.0% 4,500 4,287 • Ramping multi-billion-dollar U.S. DoD and interna
Slide 34: Global leadership
Global leadership ($billion) Historical growth in L3Harris …led to L3Harris as #1 provider Tactical Communications… in DoD and international 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
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 ~$7B through mid-decade… U.S. tactical radio contracts1 ($million) $390M IDIQ SOCOM Tactical Comms (STC) Single-award 2-channel multiband handheld 1,919 $255
Slide 37: …and maintaining international leadership
…and maintaining international leadership L3Harris’ growing share of the …with multi-billion-dollar Growth strategy international installed base… modernization pipeline (Thousands of tactical radios) • Drive global refresh & 380 modernization leveraging incumbency and local partnerships • Capture Al
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… backlog1… • Demand for LHX products remains strong...no anticipated • Sourcing environment for global electronic impact to bookings nor win-rates at Ta
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 ~$1B in annual revenue Assured Communications Advanced tactical datalinks, networked- collaborative
Slide 40: …and integrated & networked vision market
…and integrated & networked vision market L3Harris has grown into an industry leader… • Leading edge Night Vision technology • Full suite of electro-optic / infrared day / night fighting equipment for the dismounted warfighter • Bundled portfolio solutions for U.S. DoD, federal law enforcement, and
Slide 41: ESG
ESG L3HARRIS L3Harris Investor Overview 41
Slide 42: L3Harris committed to ESG
L3Harris committed to ESG Environmental Social Governance 2026 Goals1 Dedicated to fostering a diverse and inclusive Board of Directors elected annually by work environment… shareholders ~ 50% ➢ 11 of 13 directors are independent 30% 2021 Long-term ~ 33% ➢ Diverse mix of backgrounds, skills and goal
Slide 43: Fourth Quarter Calendar 2021 Results
FOURTH QUARTER CALENDAR 2021 RESULTS L3HARRIS L3Harris Investor Overview 43
Slide 44: L3Harris 4Q21 and CY21 financials
L3Harris 4Q21 and CY21 financials ($million, except per share amounts) 1Organic revenue and organic revenue growth exclude revenue attributable to each divested business for the portion of the prior-year period equivalent to the portion of the current-year period following the date the business was
Slide 45: 2022 full-year guidance
2022 full-year guidance 1Organic revenue growth excludes revenue attributable to divested businesses in fiscal 2021; refer to NGFM reconciliations and disclosures in other quarterly earnings materials and the L3Harris investor relations website. 2Non-GAAP EPS and adjusted free cash flow (FCF) are NG
Slide 46: 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 financial measures that exclude or include amounts, or are subject to adjustments, so as to be different fro
Slide 47: Reconciliation of Non-GAAP Financial Measures – Segment Operating Income and Margins
Reconciliation of Non-GAAP Financial Measures – Segment Operating Income and Margins since the L3Harris Merger L3HARRIS L3Harris Investor Overview 47
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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