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    LHX
    Earnings call· Dec 2024(Q4 FY24)

    L3HARRIS TECHNOLOGIES, INC. /DE/ Q4 FY24 earnings call LHX

    Jan 30, 2025 Source

    Executive summary

    L3Harris Q4 FY24 — Record Backlog and Strong Cost Savings Drive Growth

    L3Harris concluded FY24 with strong financial results, driven by record backlog and significant cost savings from its LHX NeXt initiative, which is now ahead of schedule. The company is strategically aligning its portfolio and leadership to capitalize on evolving national security priorities, including AI and autonomy, while navigating near-term budgetary constraints in the space sector and potential Q1 impacts from new government policies. Management remains confident in achieving its 2026 financial framework through continued operational excellence and innovation.

    Highlights

    5

    • Achieved record backlog, positioning the company well for future growth.

    • Exceeded LHX NeXt gross cost savings target by 2x, reaching $800 million in 2024, and now targeting $1.2 billion by end of 2025 (a year early).

    • Full year 2024 revenue of $21.3 billion, up 10% reported and 4% organically.

    • Full year 2024 non-GAAP EPS of $13.10 and free cash flow of $2.3 billion, up 14%.

    • IMS segment delivered strong Q4 revenue of $1.8 billion, up 9%, with margin expanding by 150 basis points to 13.4%.

    Concerns

    3

    • SAS segment revenue down 1% organically in Q4 due to lower F-35 related volumes and challenges on some fixed-price development programs in space.

    • Space sector faces budgetary constraints in 2025, expected to abate in 2026, impacting SAS revenue growth.

    • Potential for bumpy months in Q1 FY25 due to new administration's executive orders impacting U.S. government contracting, particularly for CS bookings and revenue.

    Guidance & targets

    17
    CategoryTargetConfidence
    Full-year 2025 Revenue
    $21.8 billion to $22.2 billion
    high materiality
    High
    Full-year 2025 Organic Revenue Growth
    4% at the midpoint
    high materiality
    High
    Full-year 2025 Segment Operating Margin
    mid- to high 15%
    high materiality
    High
    Full-year 2025 Free Cash Flow
    $2.4 billion to $2.5 billion
    high materiality
    High
    Full-year 2025 Non-GAAP Diluted EPS
    $10.55 to $10.85
    high materiality
    High
    Full-year 2025 SAS Revenue
    $6.9 billion to $7.1 billion
    medium materiality
    Medium
    Full-year 2025 SAS Operating Margin
    low 12% range
    medium materiality
    Medium
    Full-year 2025 IMS Revenue
    $7 billion to $7.2 billion
    medium materiality
    Medium
    Full-year 2025 IMS Operating Margin
    low 12% range
    medium materiality
    Medium
    Full-year 2025 CS Revenue
    $5.6 billion to $5.7 billion
    medium materiality
    Medium
    Full-year 2025 CS Operating Margin
    high 24% range
    medium materiality
    Medium
    Full-year 2025 Aerojet Rocketdyne Revenue
    approximately $2.5 billion
    medium materiality
    Medium
    Full-year 2025 Aerojet Rocketdyne Operating Margin
    mid-12% range
    medium materiality
    Medium
    Full-year 2025 Share Repurchases
    at least $1 billion
    high materiality
    High
    2026 Segment Operating Margin Framework
    low 16%
    high materiality
    High
    2026 Sales Framework
    $23 billion
    high materiality
    High
    2026 Cash Framework
    $2.8 billion
    high materiality
    High

    Segment performance

    4
    SegmentRevenueYoYQoQMargin
    Space & Airborne Systems (SAS)
    Revenue down due to antenna business divestiture and lower F-35 related volumes as TR-3 transitions. Margin improvement driven by LHX NeXt cost savings, partially offset by challenges on fixed-price development programs in space.
    Operating margin change: +20 bps YoY
    		$1.7 billion-4%—10.8%
    Integrated Mission Systems (IMS)
    Strong results reflecting program execution and favorable mix.
    Operating margin change: +150 bps YoY
    		$1.8 billion+9%—13.4%
    Communication Systems (CS)
    Driven by demand for software-defined resilient communications equipment and a heavier mix of deliveries to U.S. DoD customers. Seeing strong international demand and momentum.
    		$1.4 billion+5%—24.4%
    Aerojet Rocketdyne
    Supported by progress on solid rocket motor production, offset by lower volume in space propulsion.
    Operating margin change: +40 bps YoY
    		—+5%—11.5%

    Operational metrics

    14
    Revenue
    $21.3 billion+10% reported, +4% organic YoY
    FY24
    Segment Operating Margin
    15.4%
    FY24

    Reflecting continued cost savings and strong execution.

    Non-GAAP EPS
    $13.10
    FY24
    Revenue
    $5.5 billion+4% organic YoY
    Q4 FY24
    Segment Operating Margin
    15.3%
    Q4 FY24
    Non-GAAP EPS
    $3.47
    Q4 FY24
    LHX NeXt Gross Cost Savings
    $800 million2x target
    FY24

    Exceeded target, now expecting to achieve $1.2 billion in cumulative savings by end of 2025, a year early.

    Cumulative Cost Savings
    almost $2 billion
    last 6 years

    Includes $650 million from merger and LHX NeXt savings.

    Net Leverage
    2.9xexceeding target of 3.0x
    end of FY24

    Strengthened balance sheet, exceeding target.

    Pension Asset and Liability Transfer
    approximately $1.2 billion
    Q1 FY25

    Expected to complete by end of Q1 FY25 to derisk balance sheet, taking advantage of attractive funding levels and interest rate environment.

    Non-GAAP Diluted EPS (pro forma)
    $9.70
    FY24

    If the new non-GAAP EPS reporting (excluding amortization of acquisition-related intangibles) had been applied for 2024.

    International Revenue Share
    21-22%
    current

    Management sees opportunity for this to grow a percent or two.

    Q1 FY25 Quarter Length
    12 weeksshort
    Q1 FY25

    Will result in some variability in revenue and EPS between quarters; should be considered in modeling.

    Negative EAC Adjustments
    approximately $100 million
    FY24

    Realized across a couple of classified space programs, largely offset by other program performance.

    Industry KPIs

    5
    MetricValueDetails
    Total company backlogrecord
    Defense program awards$1 billionUSD
    Program segment backlog40 satellitesunits
    Program margins eac chargesapproximately $100 millionUSD
    Production capacity expansionincreased capacity

    Orderbook & backlog

    2
    Total Backlogrecordend of FY24

    Positions the company well for the future.

    Satellite Backlog40 satellitesFY24

    Achieved in 5 years, starting from no satellites as a prime.

    Product announcements

    4
    ProductTypeDetails
    Next-Gen Jammermilestone
    Glide Phase Interceptor (GPI) and Next-Generation Interceptor (NGI)milestone
    Resilient Communications Technology (Link 16 terminals)milestone
    Command-and-Control System for Swarming Autonomous Assetsmilestone

    Deals & partnerships

    5
    PalantirCollaboration on AI-enabled solutions and emerging technologies.

    Advanced collaboration with Palantir to accelerate innovation and speed, enhancing ability to meet customer needs faster.

    Venture Capital-Backed Start-upsFocus on AI-enabled solutions and emerging technologies; L3Harris owns small parts of up to 40 such companies.

    Partnerships focusing on AI-enabled solutions and emerging technologies, accelerating innovation.

    UndisclosedDivestiture of the Commercial Aviation Solutions business.

    Working towards closing the transaction, which involves regulatory and other processes due to joint venture aspects.

    UndisclosedDivestiture of noncore businesses (antenna products and Aerojet Ordnance Tennessee).

    Completed the divestiture of antenna products and Aerojet Ordnance Tennessee noncore businesses in 2024.

    UndisclosedIntegration of previously acquired businesses (Aerojet Rocketdyne and Tactical Data Links).

    Completed the integration of Aerojet Rocketdyne and Tactical Data Links acquisitions in 2024.

    Capital programs

    1
    Solid Rocket Motor Capacity Expansionunderway

    Benefit: increased capacity for solid rocket motors

    Investments are being made to increase capacity for solid rocket motors to support critical mission needs, especially given high market demand.

    Risks & headwinds

    5
    Budgetary constraints in the space sectorFY25, expected to abate in FY26

    impacting SAS revenue growth

    Mitigation: Company is well-positioned for future opportunities like Tranche 3 and aligns with national missile defense initiatives.

    Impact of new administration's executive orders on U.S. government contractsQ1 FY25

    could see an effect on Q1 FY25 bookings and revenue, particularly at CS

    Mitigation: Company assumes continuing resolution through March 2025 and no other funding delays. Management is prepared to adapt to changes and believes the company's agility will be an advantage.

    High inflation impact from supply chain on electronic componentsongoing

    highest inflation impact of all segments

    Mitigation: Absorbing and offsetting through LHX NeXt savings and E3 savings; seeking C2/C3 systems opportunities.

    Challenges on fixed-price development programs in spaceFY24, largely expected to be behind by early FY26

    approximately $100 million of negative adjustments (EACs) in FY24

    Mitigation: Team works hard to offset challenges with LHX NeXt savings and other innovations; programs are in late stages of completion, with risk management ongoing through 2025.

    Q1 FY25 revenue and EPS variability due to varying number of weeksQ1 FY25

    Q1 is a short 12-week quarter

    Mitigation: Advised investors to consider this in their modeling.

    What to watch in Q1 FY25

    5

    Space Sector Budgetary Constraints Abatement

    FY26
    CurrentImpacting SAS revenue growth in FY25
    TargetAbatement of constraints, leading to growth in FY26

    Why it matters

    This will determine the growth trajectory of the SAS segment, a key part of the portfolio.

    At the segment level, SAS revenue is expected to grow to a range of $6.9 billion to $7.1 billion, reflecting budgetary constraints in the space sector that we expect to abate📎 in 2026.

    Q&A highlights

    5

    Seeking feedback on Chris Kubasik's letter to DOGE leaders and how the new administration might change the contracting environment, given historical valuation compression.

    Chris Kubasik expressed excitement about DOGE, noting positive feedback from Congress and the Pentagon. He believes the cumulative effect of past risk-reduction policies has created more risk. He anticipates "unprecedented change" in 2025, with L3Harris positioned to adapt by being agile and fast. He emphasized starting a dialogue to accelerate capability delivery to warfighters.

    “I think a lot of people read the letter. I'm really just trying to start the dialogue. I think Congress plays a role. I think the DoD plays a role. The warfighter plays a role. And I think it's important for industry to be part of this ecosystem and give their perspective.”

    asked by Peter Arment · answered by Christopher Kubasik

    2 min read6 chapters

    Detailed Narrative

    01

    Trusted Disruptor Strategy and Partnerships

    L3Harris continues to execute its "Trusted Disruptor" strategy, bridging traditional primes and new entrants. This involves partnerships with companies like Palantir and venture capital-backed startups, particularly in AI and autonomy, to accelerate innovation and meet evolving national security needs. The company highlights wins in Next-Gen Jammer, Glide Phase Interceptor, and next-generation interceptor programs as examples of this strategy.

    02

    LHX NeXt Initiative Success

    The LHX NeXt initiative significantly exceeded its 2024 gross cost savings target, achieving $800 million, double the initial goal. This strong performance has led to an accelerated target of $1.2 billion in cumulative cost savings by the end of 2025, a year ahead of schedule. These savings are driving margin expansion, operational efficiency, facility rationalization, and supply chain improvements, with approximately 40% expected to flow through to margin opportunity.

    03

    Space Portfolio Expansion

    L3Harris has rapidly expanded its space capabilities, reaching a record backlog of 40 satellites in five years, starting from zero as a prime. A key achievement was the successful completion of the engineering design review for 18 space vehicles for the FDA's Tranche 2 Tracking Layer program, demonstrating speed and expertise in missile tracking and defense systems. The company is well-positioned for future Tranche 3 opportunities and aligns with the U.S. "Iron Dome" initiative.

    04

    Leadership and Governance Changes

    Ken Bedingfield has been appointed President of Aerojet Rocketdyne in addition to his CFO role, aiming to drive operational excellence. Sam Mehta's role expanded to lead enterprise strategic collaboration agreements, while the LHX NeXt organization, led by Heidi Wood, has been elevated to report directly to the CEO. Chris Kubasik was also elected Chairman of the Board of Governors for the Aerospace Industries Association, signaling increased industry leadership.

    05

    New Administration and Defense Priorities

    Management anticipates an "unprecedented🌐 change" in defense priorities and policies under the new administration in 2025, setting the stage for disruptive evolution. L3Harris aims to adapt quickly, leveraging its agility and open system architecture to support the warfighter. The company has submitted recommendations to the DOGE committee to modernize the defense ecosystem, advocating for faster procurement processes and reduced bureaucracy.

    06

    Fiscal Calendar and Q1 Variability

    The company highlighted that its 2025 guidance reflects varying numbers of weeks in certain quarters, with Q1 being a short 12-week quarter. This will result in some variability in revenue and EPS between quarters, advising investors to consider this in their modeling. This is a specific point of detail for analysts.

    AI-generated summary of the company’s earnings call. Not investment advice.