L3Harris Technologies (LHX) Q1 FY26 earnings call: guidance and Q&A

Given the Investor Day chart showing higher multi-year growth for SMS than CSD, how does management see SMS's growth profile over the next few years, and is there upside to consensus estimates?

Chris Kubasik highlighted SMS's strong pipeline in ISR, citing the South Korea and NATO awards, and the potential for 22+ Compass Call aircraft. He also emphasized the growth in Space, where L3Harris has won every SDA competition and secured a $600 million sole-source classified contract with potential for billions. He affirmed the company's guidance and noted the strong maritime budget.

“I think the future of ISR is very bright as a result of that, just that one market. Space, we've talked a lot about space, this is another decision strategically we made about 5 years ago to invest in the space to be a prime satellite manufacturer.”

asked by John Godyn · answered by Christopher Kubasik

Can management provide more color on the significant growth in the space business, especially regarding 'Golden Dome' opportunities and classified programs?

Kubasik explained the space business is growing well in missile warning/tracking and classified work. He mentioned the HBTSS follow-on proposal and a $600 million sole-source classified contract with potential for billions, attributing it to past performance and innovative solutions. He noted the ability to build satellites quickly and affordably, with Tranche 1A Satellite launching later this year.

“On the classified, I can tell you that we have been awarded a sole-source contract for $600 million with the potential for billions of dollars of follow-on. And that is a result of our past performance, a creative, innovative solution that is working and is pretty much a game changer.”

asked by Ronald Epstein · answered by Christopher Kubasik

When are the $25 billion in pending MAC orders expected to finalize and flow through, and will it be a single event or over time?

Kubasik clarified that framework agreements (term sheets) with primes (Lockheed, Raytheon) are nearing finalization, which will allow L3Harris to accelerate investments. The next step is for primes to convert their framework agreements into contracts, followed by L3Harris converting its subcontracts. He targets the end of the calendar year for definitized contracts, emphasizing the innovative approach by the Department of War and the long-term nature of these 5-7 year programs.

“We're targeting the end of the calendar year. We have plenty of business and backlog that we're executing upon. This would be the next tranche. But I don't see any line breaks or anything. In fact, we'll be ramping up.”

asked by Myles Walton · answered by Christopher Kubasik

Could management elaborate on the ISR portfolio's performance, the impact of the South Korea award, and the international pipeline for ISR?

Kubasik stated ISR has seen a complete turnaround, driven by both domestic classified programs and international demand. He highlighted the $40 billion international ISR pipeline and the momentum from the South Korea award, which led to a subsequent NATO customer award within months. He noted the efficiency of missionizing commercial aircraft (18 months) as a key differentiator for early warning systems.

“On the international, we were just reviewing the other day, we have about a $40 billion pipeline just on ISR international, to answer your question.”

asked by Sheila Kahyaoglu · answered by Christopher Kubasik

What are the takeaways from the budget request for the communications business, including traditional Army/Marines programs and new C2 infrastructure lines?

Kubasik reported strong funding for Army HMS ($515 million in FY27, similar for 5 years) and a significant increase for Marines' radios ($200 million to $750 million). He confirmed L3Harris's support for the NGC2 strategy, with two initial contracts for the transport layer, and efforts to integrate products into an open systems architecture. He also highlighted strong international demand from NATO allies (Czech Republic, Germany, Poland).

“Army HMS is well funded and hopefully eliminates a lot of the concerns out there about the future of that portfolio. When you switch to the Marines, 2026 was a little bit of an off year, their budget was down to $200 million. As of today, they have requested $750 million.”

asked by Seth Seifman · answered by Christopher Kubasik

How is L3Harris approaching its R&D investment, what percentage of revenue is allocated, and how is it used across the portfolio?

Kubasik stated that L3Harris is proud to increase margins while investing in R&D, which is typically 2.5% to 3% of revenue. However, including CRAD contracts and Shield capital investments, total innovation spending is around 10% of revenue. He mentioned a new Falcon 5 radio with high data rate capabilities is being rolled out, and that these investments support 10-year modernization cycles.

“We stick kind of in that 2.5% to 3% of revenue for our R&D. But the reality is we'll do whatever it takes based on the demand and the opportunities. As we've talked before, we have well over $1 billion of [ CRAD ] contracts. So in some cases, the customer gives us R&D contracts. I'd put that on top of it. So we kind of kick around $2 billion or so a year we're spending in R&D.”

asked by Doug Harned · answered by Christopher Kubasik

Given the high organic revenue growth and new order bookings in Q1, does the reiteration of full-year revenue guidance imply conservatism, and does increased backlog coverage suggest near-term upside or longer duration growth?

Kubasik stated that higher backlog gives confidence in longer duration of revenue growth and potential to accelerate. Ken Sharp acknowledged the strong Q1 (15% organic growth) and a "level of conservatism" in guidance, noting it's early in the year and they increased EPS guidance. He estimated the extra productive days in Q1 contributed ~$200 million to revenue.

“I do think there's a level of conservatism in there. The extra productive days, it's really hard to exactly put your finger on the dollar amount, but I think it's a couple of percentage points at the end of the day, so maybe think $200 million-ish in revenue.”

asked by Noah Poponak · answered by Kenneth Sharp

Is the space pipeline expanding meaningfully beyond HBTSS, particularly in space surveillance and AMTI, potentially leading to increased order flow in the next 12 months?

Kubasik confirmed a "tens of billions of dollars" space pipeline, including LEO, MEO, and GEO opportunities, primarily with Air Force/Space Force. He noted that past performance positions them well for upcoming competitions, and that they participate as prime, subcontractor, and merchant supplier. He emphasized the big focus on missile warning, missile defense, hypersonics, and classified areas.

“Pete, I can assure you the pipeline here is, I'm looking at, is in the tens of billions of dollars. A lot of what I talk about is the LEO, the low earth orbit. There are opportunities that we are currently working on and bidding that are both MEO and GEO orbits that, as you would imagine, are all classified.”

asked by Peter Skibitski · answered by Christopher Kubasik