L3Harris (LHX) Q1 2026 Earnings Transcript

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Date

Thursday, April 30, 2026 at 10:30 a.m. ET

Call participants

• Chair and CEO — Christopher E. Kubasik
• Chief Financial Officer — Kenneth A. Sharp

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Takeaways

• Organic revenue growth -- Revenue increased by $600 million to $5.7 billion, marking 15% organic growth, with nine out of the last 10 quarters achieving organic growth.
• Backlog -- The backlog nearly doubled to over $40 billion, representing two times the company's annual revenue, excluding $25 billion of pending Munitions Acceleration Council (MAC) orders under negotiation.
• Book-to-bill ratios -- Total book-to-bill ratio was 1.4, while international book-to-bill reached 2.2.
• Segment operating income -- Segment operating income rose $125 million to $902 million.
• Segment margin -- Segment operating margin was 15.7%, up 10 basis points year over year.
• GAAP EPS -- GAAP earnings per share were $2.72, up 33% year over year.
• Free cash flow -- Free cash flow was an outflow of $187 million, which management characterized as typical for the first quarter due to working capital timing.
• Space & Mission Systems revenue -- This segment delivered $3 billion in revenue, up 24%, benefiting from a new classified program milestone; segment margin expanded by 60 basis points.
• Communication & Spectrum Dominance revenue -- Revenue was $1.9 billion, reflecting 3% growth, with margin up 60 basis points.
• Missile Solutions segment -- Segment revenue was $1 billion, up 18%, with operating margin at 12.5% (an increase of 110 basis points), supported by higher production volumes and asset sales, partially offset by unfavorable EAC adjustments.
• International revenue growth -- International business accelerated above 20% growth, and $460 million in international resilient communications orders were booked with three NATO countries.
• Major contract awards -- The company secured a>$2.2 billion international missionized business jet program with an initial $726 million order, and two Royal Canadian Air Force contracts totaling approximately $700 million.
• Munitions Acceleration Council programs -- $25 billion in orders for these programs remain under negotiation and are expected to convert to contracts by year-end.
• Capital structure developments -- A $1 billion Department of War investment for Missile Solutions was received, and a confidential Form S-1 for an IPO of Missile Solutions (to be named "Axyv") was filed.
• Productivity gains -- Revenue per employee increased by almost 25% over the past couple of years, attributed to productivity improvements and technology investment including AI.
• R&D and innovation spend -- Innovation and capacity investments rose 44% in the quarter, with R&D spend noted at approximately 2.5%-3% of revenue, plus over $1 billion in customer-funded R&D contracts contributing to a roughly 10% all-in innovation rate.
• 2026 outlook -- Management reaffirmed full-year revenue guidance at $23 billion to $23.5 billion (7% organic growth at the midpoint), segment operating margin guidance in the low 16% area, and free cash flow guidance of $3 billion.
• EPS guidance increase -- GAAP EPS guidance for the year was raised by $0.10 at both ends to $11.40 to $11.60.
• Missile Solution IPO and portfolio actions -- The segment is included in current 2026 and 2028 guidance; impacts from the planned IPO, Department of War investment, or the planned majority sale of space propulsion are not yet reflected and will be considered upon execution.

Summary

Management emphasized a strategic alignment with increased global defense priorities, highlighting a near doubling of backlog and strong international demand. The company reported significant classified and missile segment growth, noting asset sales and a $1 billion Department of War investment as key strategic actions. R&D investments and productivity initiatives created efficiency gains, while large multiyear contract negotiations in munitions and communications are expected to further drive performance. Guidance updates maintained revenue and margin targets while increasing EPS. Portfolio shaping through an IPO of Missile Solutions and divestitures remains ongoing, with expected incremental updates upon deal closure.

• The new missile company will be named "Axyv," following a confidential S-1 filing and rebranding inspired by missile guidance terminology.
• International book-to-bill reached 2.2 for the quarter.
• Management stated, "Segment operating margins have now increased for the tenth consecutive quarter," reflecting operational discipline and program execution across segments.
• The installed base of software-defined radios surpassed 1 million units worldwide, with management planning to expand it by 20% over the next couple of years to serve evolving communication requirements.
• Classified work represented 28% of total company revenue, up from the previous year. Management sees classified work continuing to grow as a share of the business mix.
• Book-to-bill performance and backlog expansion were achieved without inclusion of the $25 billion in pending MAC orders, suggesting further backlog growth.
• Management confirmed asset sales contributed approximately 30-40 basis points to segment margin in the missiles business this quarter, offset by negative EAC adjustments.
• International ISR business pipeline is estimated at roughly $40 billion, signaling substantial long-term opportunity outside the domestic market.

Industry glossary

• Book-to-bill ratio: The ratio of new orders received to revenue recognized in the same period, indicating future demand versus delivered performance.
• ISR (Intelligence, Surveillance, and Reconnaissance): Mission systems and platforms focused on collecting, analyzing, and disseminating battlefield intelligence.
• SDA (Space Development Agency): U.S. agency tasked with developing new military space capabilities, including missile tracking satellite constellations.
• HPTSS (Hypersonic and Ballistic Tracking Space Sensor): A defense program for missile tracking satellites focused on addressing hypersonic threats.
• MAC (Munitions Acceleration Council): U.S. Department of War council directing and accelerating missile and munitions procurement.
• EAC (Estimate at Completion): A project management metric projecting the final cost of a program or contract.
• ID/IQ (Indefinite Delivery / Indefinite Quantity contract): A contract allowing multiple orders over a fixed period under general terms.
• NG C2 (Next Generation Command and Control): Army modernization effort to upgrade battlefield communications and control infrastructure.
• SRM (Solid Rocket Motor): A propulsion technology for missiles, representing a critical component in L3Harris Technologies' supply chain and production ramp.
• Falcon V / Falcon IV radios: Proprietary L3Harris Technologies software-defined radios designed for military data and communications requirements.

Full Conference Call Transcript

Christopher E. Kubasik: Thanks, Tony, and good morning, everyone. I would like to start by thanking Kenneth L. Bedingfield for his two-plus years as CFO, and for taking on the missile solutions segment president role this past year. Ken is now focused full time on expanding solid rocket motor production capacity in support of the Munitions Acceleration Council program. I would also like to welcome our new CFO, Ken Sharp, to today's call. He joined the team in mid-March and has hit the ground running. I continue to believe L3Harris Technologies, Inc. attracts the best talent in the industry, and I am excited about what we are building here.

Also, I would like to thank our employees for a great first quarter—one of the best we have had—and especially those employees that are forward deployed supporting our warfighter. The global security environment is evolving rapidly, and the implications for our customers are increasingly clear. Across the Middle East, Europe, and the Indo-Pacific, the threat environment is driving greater urgency around readiness, resilience, and modernization. Our customers are focused on capabilities that can be quickly fielded, and they are looking for partners that can deliver. This positions us well to drive industry-leading growth. Our strategy is aligned with customer demand. The Trump administration has made it clear that rebuilding the defense industrial base is a national security imperative.

The Pentagon and Congress are increasingly supportive of multiyear procurement authorities and other mechanisms to improve throughput across the ecosystem. In support of that imperative, there has been a step change in the DoD budget request driven by the need for affordable solutions that can be produced at speed and scale. With a $1.1 trillion base budget request, and $350 billion in reconciliation funding, the proposed budget sends a strong signal that our nation must invest in the industrial base. Specifically, the president's request reinforces demand signals for critical missiles and munitions, SDA tracking layer, Compass Call business jets, and tactical communication modernization—all of which align with our core strengths.

At the same time, our allies are expanding their defense budgets. There is a greater urgency around modernization in Europe and other key international markets. Our international book-to-bill was 2.2 for the quarter. Over the past five years, we have embraced the unique trusted disruptor strategy that positions us between traditional primes and the new defense tech companies. We are delivering at the scales expected of a prime combined with the agility and rapid missionization of new defense tech companies. Our consistently strong financial results demonstrate the success of our strategy. Everything we have done for the past five years is positioning us for sustained growth for the next decade.

We have purposefully positioned ourselves around the fastest growing priorities including space sensing and missile defense, aircraft ISR missionization, resilient communications, and missiles and munitions. Our customers are moving with urgency. They need capability delivered at speed, at scale, and with proven performance. We are aligned with those requirements, and we are executing against them now. Capacity is the new capability, and that is what L3Harris Technologies, Inc. has. So let us get into the details. Our backlog has almost doubled to over $40 billion, and that does not yet include the $25 billion of orders for the Munitions Acceleration Council programs which are currently in negotiations.

This record-breaking backlog also positions us to be more durable and predictable as we have increased to two times revenue coverage. In Q1 2026, revenue grew over $600 million, or 15% organically. Revenue has now grown organically in nine of the last 10 quarters. Our operating income increased by $125 million. We continue to expand and deliver industry-leading margins underpinned by strong program performance even as we continue to accelerate investments in our business. Segment operating margins have now increased for the tenth consecutive quarter. Our focus on transformation and being agile meant reducing unnecessary cost and streamlining our operations.

Revenue per employee has increased by almost 25% over the past couple of years, driven by productivity improvements and aided by investments in technology, including AI. Earlier this year, we entered into an agreement to sell 60% of our space propulsion and power systems business, announced and closed the novel partnership receiving a $1 billion investment from the Department of War, and filed a confidential Form S-1 with the SEC last night to take our missile solutions segment public. We accomplished all of this while delivering an impressive first quarter. Key orders this quarter highlight our strategy in action. We achieved a 1.4 book-to-bill with awards in missionized aircraft, solid rocket motors, and software-defined communication products.

Within Space and Mission Systems, we built on our fourth quarter marquee win, the South Korea airborne early warning and control aircraft program. We won another international multi-aircraft missionized business jet program just a few months later. This award with a NATO ally is valued at more than $2.2 billion with an initial $726 million order booked in the quarter. We also secured the Strategic Tanker and Transport Capability award in Canada with two contracts totaling approximately $700 million to support the Royal Canadian Air Force. Within resilient communications, international demand for software-defined tactical communication products remains very strong.

This quarter, we booked $460 million of international orders with three NATO member countries who prioritize resilient, low probability of detect communications in contested environments. In missile warning and missile defense, we have invested in building differentiated positions. To date, we have secured 56 SDA tracking satellites, driving growth in our Space and Mission Systems business. We submitted our HVTSS follow-on proposal and look forward to a midyear award. Within our ISR business, we have produced over 100 missionized business jets over the past decade. In the quarter, we delivered the first two Peregrine business jets to the Royal Australian Air Force to advance their airborne ISR and electronic warfare capabilities.

Our business continues to grow with 20 missionized business jets in production. Turning to resilient communications, we have an installed base of 1 million software-defined radios worldwide. We are well positioned to increase that by 20% over the next couple of years supporting customer needs for secure, upgradable systems that operate seamlessly in contested environments. Our missile solution strategy, including the $1 billion Department of War investment which we received in April, and our planned IPO represents a thoughtful and creative evolution in how we are positioning the business. We designed this model intentionally to move faster, unlock incremental shareholder value, and align more closely with customer priorities in a rapidly evolving environment.

We continue to move quickly to accelerate the expansion of solid rocket motor capacity. Our customers are taking note of our investments, all of which are reflected in our 2028 financial framework. In February, we proudly hosted the Secretary of War in Camden, Arkansas, to highlight the progress on our solid rocket motor capacity expansion and to meet our patriotic workforce. Our missile solutions business is making excellent progress. Our team is in place. The S-1 is filed. Negotiations on multiyear procurement frameworks are progressing. And we expect to synergize contracts later this year. Our new missile company will be named Axyv, spelled A-X-Y-V.

The Axyv name is inspired by the engineering of missile guidance and positioning: the A for axes of X and Y and the V for the velocity of the missile trajectory. Axyv conveys how we think about the business, with clarity of strategy, certainty of direction, and focus on agile execution. The company is built for momentum, with a portfolio designed to deliver at scale. As you can see, we delivered a strong first quarter, reinforcing our line of sight to our 2026 commitments and the 2028 financial framework. I will now turn the call over to Ken for the financial results.

Ken Sharp: Thank you, Chris. I would like to start by saying it is an honor to join the L3Harris Technologies, Inc. team at such a pivotal time. I am excited to contribute to a mission that plays such a critical role in supporting the men and women who serve our country as well as those of our allies. I also want to sincerely thank the entire L3Harris Technologies, Inc. team for such a warm welcome. Our strategy as trusted disruptor continues to drive strong financial results. We have the capability to invest and deliver at scale while having a commercial mindset to anticipate customer needs, innovate, and rapidly bring solutions to the warfighter.

This approach has allowed us to outperform our legacy peers over the last couple of years as we have fundamentally changed our processes, cost structure, and strategic focus. You can see this in a multiyear financial proof point Chris highlighted earlier. Revenue grew, as reported, over $600 million to $5.7 billion, yielding 15% organic growth. We experienced particular strength in our Space and Mission Systems and Missile Solutions segments. We also continue to experience strong international demand with growth accelerating over 20% as our allies modernize their technologies and invest more heavily in their national defense. Segment operating income increased $125 million to $902 million.

The increase was due to revenue volume, improved program performance, and higher monetization of legacy assets, partially offset by higher growth in businesses with lower average margin and increased investment in research and development. Segment operating margin was 15.7%, up 10 basis points from the prior year. GAAP earnings per share of $2.72 was up 33% year-over-year. The increase reflects higher operating income, lower interest expense, and a lower effective tax rate, partially offset by lower pension income. Free cash flow was an outflow of $187 million, driven by working capital timing. The Q1 free cash flow is typical of our trends.

As a reminder, we now report on a GAAP basis for both segment operating income and earnings per share. This change reflects our continued commitment to enhancing transparency and further improving the quality of our earnings. I would also note that the prior-year quarter had fewer working days. Lastly, our investment in innovation and capacity, which are hallmarks of our trusted disruptor strategy, increased 44% in the quarter. Turning to our segment results. Space and Mission Systems delivered revenue of $3 billion, up 24% year-over-year, driven by strength in a number of our sectors. Space and Mission Systems revenue benefited from a milestone associated with procurement of material on a new classified program.

Segment margin increased 60 basis points due to improved program performance, partially offset by increased material purchases and increased investment in research and development. Communication and Spectrum Dominance delivered revenue of $1.9 billion, up 3%, driven by increased volume of resilient communications products, night vision devices, and the ramp-up on the Next Generation Jammer electronic warfare program. Segment operating margin increased 60 basis points due to higher sales of resilient communication products and night vision devices, and a favorable legal settlement. This was partially offset by higher investments in customer demonstrations, prototypes, and research and development. Turning to Missile Solutions. Revenue was $1 billion, up 18%, and segment margin was 12.5%, up 110 basis points.

Revenue increased on higher production volumes across key missile, munitions, and space propulsion programs. Missile segment margins increased due to mix and volume and a gain on the sale of legacy assets, partially offset by net unfavorable EAC adjustments. I will now turn the call back to Chris.

Christopher E. Kubasik: Alright. Thanks, Ken. Let me highlight a few examples that demonstrate our agile approach to innovation and growth. Within our missile warning and missile defense business, the DoD jointly recognized the government and our Space Systems team with the 2025 David Packard Excellence in Acquisition Award. This award acknowledged the success of this joint team on the HPTSS program. The system successfully demonstrated tracking against a hypersonic target. It is proven and ready to defend the nation. Turning to the threat from unmanned aircraft systems, we anticipated a need for low-cost counter-UAS systems. As a result, we invested ahead of need to develop this capability and converted an existing factory to integrate our VAMPIRE counter-drone systems.

We are positioned to capitalize on the rapidly expanding pipeline for these critical counter-drone systems. Our VAMPIRE system is combat-proven with hundreds of successful drone engagements, providing a modular, highly effective, low cost-per-kill solution. And we supported the successful Artemis II mission, contributing over 100 critical subsystems and components including propulsion, compute, communications, and critical systems for the first crewed lunar mission in more than fifty years. This mission demonstrates the breadth and depth of our engineering talent and our ability to support some of the most complex missions in the world and beyond. Taken together, these examples highlight a consistent theme.

We are aligned to the most important missions, delivering capabilities needed today, and building the capacity required to sustain that growth over time. Back to you, Ken.

Ken Sharp: Perfect, Chris. Turning to our 2026 guidance on Slide 10. We are reaffirming the full-year revenue guidance of $23 billion to $23.5 billion, representing 7% organic growth at the midpoint. We are maintaining our segment operating margin guidance of low 16%. We are increasing both the bottom end and top end of our GAAP EPS range by $0.10 to $11.40 to $11.60. We are reaffirming our free cash flow guidance of $3 billion. Our cash generation will be weighted to the back half of the year. At the segment level, we are reaffirming our revenue and segment margin guidance. Our 2026 guidance and 2028 framework continue to include Missile Solutions as it exists today.

Consistent with our past practices, we do not contemplate impacts from the planned Missile Solutions IPO, the Department of War investment, or the planned sale of a majority stake in our space propulsion business. When these transactions occur, we will update our guidance accordingly. Moving to our supplemental guidance, our non-service income increased $20 million to $290 million and total pension income to $310 million. With that, Tiffany, please open the line for Q&A.

Operator: We will now be conducting a question-and-answer session. At this time, please limit to one question per person. If you would like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 1 if you would like to remove your question from the queue. If you have an additional question, please press star 1 again to get back in the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Thank you.

Our first question today comes from the line of John Godin with Citigroup. Please proceed with your question.

John Godin: Ken, I wanted to ask about SMS and CSD, and I am reminded of a very cool chart you had at the Investor Day that showed growth versus valuation, and it implied that SMS multiyear growth was going to be considerably higher than CSD. When I look at the consensus estimates that are out there, it is pretty tightly packed. So I would love to use the opportunity to chat about SMS and what that growth profile might look like over the next couple of years and understand if there is upside to that growth over time, how you guys see it. Thank you.

Christopher E. Kubasik: Alright. Thank you, John. This is Chris here. I appreciate you referring back to that chart. I think that was an important chart, and something people want to go back and reference. SMS had a great first quarter, as you saw, and the pipeline is very strong. In our ISR business, about a decade ago we started investing to position ourselves for missionized business jets. A perfect example was the South Korea award in Q4. We talked about the NATO country, and it all started with the Compass Call.

We currently have 10 under contract today, and if you look at the budget request, you will see another 12 bringing the fleet to a potential for 22—and I believe many, many more. So I think what is unique about this market, and just ISR alone, is how well we perform and how quickly we move as a team. Specifically, we can basically take a commercial aircraft and in 18 months missionize it, which is unheard of for a military aircraft. Everyone is wanting early warning systems. I think this is one of the best platforms out there, and I think the future of ISR is very bright as a result of that one market.

Space—we have talked a lot about space. This is another decision strategically we made about five years ago to invest in space, to be a prime satellite manufacturer. We have won every SDA competition. We submitted the proposal for the follow-on to HPTSS. We would expect to win that here, hopefully, in a few months, and the space business is growing quite well. In maritime, which is also part of SMS, there has been a huge increase in the budget for Navy and Navy ships, so we have the acoustics, the optical, platform and communication systems.

So absolutely, we stand by the guidance we gave for the year, which I think is better than most out there, and we will continue to monitor and see if any adjustments are appropriate as the year progresses.

Operator: Our next question comes from the line of Ronald Epstein with Bank of America. Please proceed with your question.

Ronald Epstein: Yeah. Hey. Thanks, guys. Good morning. Chris, could we go a little deeper on what is going on in the space business? I mean, there was so much growth there, and I do not know what you can say around Golden Dome and what is going on there. But I am certain if you can give any more color on that, everybody would appreciate it.

Christopher E. Kubasik: Yeah, Ron. Good morning. I think I will put it in two big buckets. We have missile warning and missile tracking as one line of business, and we have the classified work. I will give you some insight, which will probably be unsatisfying, but nonetheless, those two lines are growing very, very well. On Golden Dome, there have been a lot of opportunities there. It has taken a while for the monies to be identified and freed up so that the Space Force can go ahead and start the acquisition process. I mentioned the RFP came out for the HPTSS follow-on. We, and I am sure others, have submitted our proposals, and that is currently under evaluation.

There are some other capabilities that are classified that fall under the broad Golden Dome umbrella. But let me just say with our capabilities, we are responding to RFPs, and our ability to build these satellites relatively quickly, affordably, and get them launched and performing I think is a differentiator. Actually, later this year, our customer will be launching the Tranche 1 eight satellites, and I think that will be pretty exciting. 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.

That is a result of our past performance, a creative, innovative solution that is working and is pretty much a game changer. So I have to acknowledge the customers are doing what they said, and they are going to reward and recognize those companies that are in fact performing. And in this environment, where speed and capacity matter, we have the factories. We have talked about the 200 thousand-square-foot investment we made a few years ago. We are performing, and I believe that positions us well for growth. I would like to point out on the HPTSS, which is probably why we won that award, it demonstrated capability—the only one to my knowledge that did.

So that is why I am optimistic that we should win the next award.

Operator: Our next question comes from the line of Myles Walton with Wolfe Research. Please proceed with your question.

Myles Walton: Thanks, and good morning. Chris, on the topic of awards, you mentioned $25 billion of orders pending with the Munitions Acceleration Council. Do you expect those negotiations to wrap up in the next quarter or two quarters? Is this going to flow through quickly in one fell swoop, or is it more the visibility of the pipeline, and it will come out over time?

Christopher E. Kubasik: Yeah. Thanks, Myles, and good morning. Step one is the framework agreement, which I have to admit in my decades of being in this industry is a new concept. I would think of that as a term sheet, if you will. We are in negotiations, again, as a supplier providing the solid rocket motors to the two major primes—Lockheed and Raytheon, specifically. They have announced their framework deals. They tend to be seven years for most of these MAC programs, like PAC-3 and THAAD, and maybe some are five-year programs or frameworks. They have theirs in place. We are close to finalizing those frameworks as a subcontractor framework with a prime. That should occur here in the near future.

There we are basically agreeing on the pricing, the schedule, and some of the key terms. Those documents will allow us and give us confidence to continue to invest, even though we have been investing, to accelerate our investments. The $1 billion from the DoW is additional cash that accelerates that investment. Then the next step will be for the primes to go ahead and turn their framework agreements into contracts, and then I think shortly after that, we would turn ours into contracts. We are targeting the end of the calendar year. We have plenty of business and backlog that we are upon. This would be the next tranche. I do not see any line breaks or anything.

In fact, we will be ramping up. I have to give the Department of War credit for their innovative approach to acquisition here. What is going on now has never been done in the history of our country, and they are going fast. We, and the rest of the defense industrial base, are keeping up with them to the best of our ability. I think it is a once-in-a-lifetime opportunity, and we are seeing a major shift—all for the positive—going forward. The budgets are up. We have the new technology. It is performing. Demand is up. And at the end of the day, you need the capacity to build all this stuff.

We have the capacity, and we are even increasing it more. So I feel pretty good about where we are, Myles, and appreciate the question.

Operator: Our next question comes from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.

Sheila Kahyaoglu: Good morning, Chris and Ken. Chris, maybe digging into Ron's question a bit more—you had such stellar growth in Space and Mission Systems. Can we talk about the ISR portfolio, how that did, how it is growing, how South Korea is coming in, and can you maybe talk about the international pipeline there?

Christopher E. Kubasik: Yeah. Thank you, Sheila. ISR has been a complete turnaround over the last couple of years, and it is both domestic and international. Let me start with the domestic side. There are a fair amount of classified programs that we are working on. Again, we are platform agnostic. We are taking anything from, as you know, crop dusters all the way up to major large commercial aircraft and missionizing, modernizing, as we have always done. There probably is not a platform we have not worked on. I mentioned 100 different aircraft in the past decade. I highlighted Compass Call as an example.

If we can get this budget passed and get an additional 12, that is a big deal for us. That is how I see the domestic side. 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. When you look at South Korea—and I know that was in the fourth quarter—but I think everyone on this call knows how long and how hard it takes to close these international deals.

To have a marquee win like that and, literally months later, to get a call from a NATO customer based on that award and all the great work we are doing is unheard of in my career. So we have the momentum. There are other international opportunities. Everybody wants early warning systems. And airborne aircraft by modifying a commercial plane seems to be the best, quickest way to get that capability. That speaks for a bright future, and that is why you see the growth for not only 2026, but all the way through the 2028 framework that we laid out two months ago.

Operator: Our next question comes from the line of Seth Seifman with JPMorgan. Please proceed with your question.

Seth Seifman: Thanks very much, and good morning, everyone. I wanted to ask about the communications business and what you learned and your takeaways from the budget request, both in terms of the traditional programs in the Army and the Marines, but also this new C2 infrastructure and C2 transport lines in the Army budget with some significant resources. How do you think about those and your ability to participate there?

Christopher E. Kubasik: Okay. Thank you, Seth. I was hoping I would get that question. Good morning. We will start domestically with the Army HMS program. This has been a long legacy for L3Harris Technologies, Inc. Happy to report that in 2027, the budget is $515 million. I think there were concerns, including myself, that early on the president's budget request or discussions were that would be cut significantly. So $515 million is a big deal. Even more impressive is that similar amounts are outlined for the next five years. So 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. So $200 million to $750 million for the Marines. They love our software-defined radios. They see the need for resiliency in dangerous and contested environments. We add in our stealth waveforms, and the affordability of these compared to maybe other options out there gives me a lot of confidence that at least the domestic side is looking good. You may recall we won a sole-source IDIQ a couple of years ago for the Marines.

I point that out because clearly the vehicle is in place—contractual vehicle is in place—if they want to move quickly. This continues to demonstrate the power of the commercial business model that we have talked about for at least a decade, and we will continue to talk about it. We have had it for close to twenty years. It is working, and I think this kind of budget and demand signal is attributed to the commercial business model, which is why I have been advocating for more and more commercial opportunities for the defense industrial base to compete on in that level playing field. The other piece that gets a lot of attention, rightfully so, is NG C2.

That is a large budget—$2.8 billion, to be specific. We are absolutely supportive of the NG C2 strategy and initiative. There is a transport layer, as they call it, which is basically where our software-defined radios, I think, will play nicely. We have already been awarded two contracts under NG C2 for the transport—admittedly not huge contracts—but still two pretty early on. The rest of the money is also associated with the infrastructure. So the Army and other companies—we are working with the Army and other NG C2 companies—to ensure that our products and radios can seamlessly integrate into an open-systems architecture that is currently being developed.

I feel pretty confident and optimistic about our radio business, whether you look at the domestic side or internationally. I will switch internationally. As I highlighted in my prepared comments, there were three NATO allies—I will not mention them by name here—who are in fact buying our products. Belgium and Netherlands are other opportunities we are working on. Those are targeted for Q4 of this year. All these programs, as we have talked about, are ten-year modernizations. They have road maps. We can see the quantities. We can see how our new products and investments are paying off. In general, all these countries are about 20% complete, so there is a long runway ahead of us.

As I mentioned, 2.2 book-to-bill international. There have been concerns whether anyone, including us, can grow internationally for all sorts of political and other reasons. But as we have said, at the end of the day, they want the best technology, and we are winning business in those countries with indigenous capabilities and head-to-head competition.

Ken Sharp: Alright. Just a quick add, Chris. One, they are spectacular radios and great to have them in the hands of the warfighter. We do expect the business to accelerate as the year progresses and get to our guidance estimate.

Operator: Our next question comes from the line of Douglas Harned with Bernstein. Please proceed with your question.

Douglas Harned: Yes. Good morning. Thank you. I wanted to continue on this theme on communications. In the past, part of what has enabled you to get the margins you have gotten in radios has been your own investment, your own IP. You said this quarter that you had higher R&D spend in both SMS and CSD. Can you talk about how you are looking at your own R&D investment going forward and what percentage of revenues you see that moving forward at, and then how you see that being used across your portfolio?

Christopher E. Kubasik: Yeah. Good morning, and thanks for that question, Doug. We are proud of the fact that we were able to increase our margins while investing. It is a huge growth market. Nobody denies that there is a huge demand, and this is kind of a once-in-a-generation opportunity to build backlog and to differentiate ourselves. We are absolutely investing in the radio business. Specifically, we will be rolling out a new radio shortly. We call it the Falcon V—following on from the Falcon IV—but it has some great new technologies that I think will be well received, and the main focus there is on the high data rate, which again is a need and a desire by the customer.

We have made those investments to allow for that to occur. As with everything, these are all ten-year modernization cycles. I mentioned that international is about 20% complete. When I look at the domestic market, they are maybe halfway through their modernization. These go on ten-year cycles. We have been investing. We are increasing. As we roll out these new capabilities, I think it is going to increase our market share. There has been no cutting back relative to that. We stick in that 2.5% to 3% of revenue for our R&D, but the reality is we will do whatever it takes based on the demand and the opportunities.

As we have talked before, we have well over $1 billion of CRAD contracts. In some cases, the customer gives us R&D contracts. I would put that on top of it. We kind of kick around $2 billion or so a year we are spending in R&D, and if you throw in the Shield Capital investments, it is another way of accelerating it. I really do not look at it from a specific account. We are spending all-in maybe 10% of revenue, in my opinion, on innovation, growth, and R&D. Hopefully, that helps, Doug.

Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs. Please proceed with your question.

Noah Poponak: Good morning, everyone. On the surface, the high rate of organic revenue growth and new order bookings growth in the quarter makes the reiteration of revenue guidance look a little conservative. I know you have the non-linear working weeks. If you could talk through how much was there pull-forward, is there conservatism, is it just the math of the working weeks? And then, Chris, you referenced your backlog coverage now being meaningfully higher. Does that make you feel more like there is upside risk to the near term, or more like the existing growth has longer duration?

Christopher E. Kubasik: Thanks for that, Noah. It definitely gives me confidence in the longer duration of revenue growth. As I mentioned, once we get these MAC programs in, you can see $60 billion to $70 billion of backlog in the next twelve months for L3Harris Technologies, Inc., which, if you go back not that long ago, is pretty darn impressive.

As I reiterated, everything we have been doing over these last three to five years had a purpose to align with the strategy that we have laid out called the trusted disruptor—which I know not everybody understands what it means—but whether you understand what it means or not, you cannot argue with the financial results, not just this quarter, but for the last three years. We are growing. We are adding backlog. If we can end the year or next twelve months with $60 billion to $70 billion of backlog, that gives me a lot of confidence in the future of growth and the visibility.

Of course, we always have the potential to try to accelerate and pull some of that stuff forward. I think I will ask our new CFO, since I defer to my CFOs on guidance adjustments and take their recommendations. Sounds like they wanted us to increase revenue. Why did you not do that then?

Ken Sharp: Alright. Thanks, Chris. Look, it is absolutely a great quarter. Great start to the year. Fifteen percent organic revenue growth, margin expansion, 33% EPS growth. So I can understand why you are asking the question. I will add we did increase EPS, so I will take credit for the $0.10 increase there, but just give you a couple thoughts. I am forty-five days into the job. We are in the first quarter. We have a lot of road in front of us. I feel incredibly confident with the business. I think you will see us in July—it is a great question to ask then.

Hopefully, we will have made some moves there, but I do think there is a level of conservatism in there. The extra productive days—it is really hard to exactly put your finger on the dollar amount—but I think it is a couple percentage points at the end of the day, maybe $200 million-ish in revenue. That really was not the driver in the quarter. It is just a great business doing really solid performance.

Christopher E. Kubasik: I will just add in, Noah. We stick with our guidance for the full year—around 7%—and it is one of those damned if you do, damned if you do not. If we ended the quarter flat, you would be asking how the heck you are going to get to seven. We come out at 15%. Gives you a lot more confidence in getting to seven. I like to start—having not had the experience much—start the year with a great first quarter, have an awesome second quarter, and then see where we are and give you an update.

A lot of things still in the works, so we need to work some more, continue to perform, and we are feeling pretty pleased with how we came out so far this year.

Operator: Our next question comes from the line of Robert Stallard with Vertical Research. Please proceed with your question.

Robert Stallard: Thanks so much. Good morning. Chris, you highlighted how classified work contributed to the strong growth in SMS. Could you give us an update on how big classified is as a percentage of the overall company, and whether you think it is going to grow faster or slower than the overall company? Thank you.

Christopher E. Kubasik: Thanks for that, Robert. I know it is never satisfying when you give the classified answer, and actually more and more programs are becoming classified that were not historically. We are hanging out right around 25% to 30%. The actual number is 28%, an increase from the prior year. We see international growing. We see classified growing. Really, everything is growing. Again, that is a result of getting this portfolio in shape over the last five years. I know there was a lot of concern about some of the acquisitions. We only made two, and they are both blowing away the business case.

We said at the time that we made these we thought they aligned with the future of warfare. It appears that they are. The stuff we divested, and will continue to look to monetize, are either not core to L3Harris Technologies, Inc. and belong with a better owner. I really like the portfolio, and I think that is why you are seeing these kinds of results, and we will continue to see how we make our 2028 framework.

Operator: Our next question comes from the line of Peter Arment with Baird. Please proceed with your question.

Peter Arment: Yes. Thanks. Good morning, Chris, Ken, and Tony. Chris, I do not think anyone would question the demand signals on supporting these multiyear agreements, but maybe you could give us a little color on how L3 is protected on the amount side if there are changes. I know you have probably thought a lot about it, but just curious to hear your thoughts. Thanks.

Christopher E. Kubasik: Thanks, Peter. That is absolutely a key focus of these negotiations. The DoW understands we are leaning forward, as is the entire defense industrial base. We may have started sooner than the rest, but everybody understands that it is more like a commercial world—you make the investments to get the long-term returns. These five- and seven-year deals are a big deal. There is bipartisan support for this, especially on missiles and munitions. It is hard to predict the future. Hopefully, a lot of this will be funded through the reconciliation—that is ten-year money. You could argue that could be covered in that.

There will be protections for changes in quantities and, I guess, in the unlikely event that a program is no longer funded or needed. Given the demand signal, it is hard to imagine that would occur—at least in where we are focused, which is missiles and ammunition. That will be the next step. The framework agreement—obviously at a high level there is an agreement relative to that. Now we just need to reduce it to writing. Great question, but clearly that is on the top of everybody's list for the entire industry, and I think we are all going to be aligned and get the protections we need.

Operator: Our next question comes from the line of Scott Mikus with Melius Research. Please proceed with your question.

Scott Mikus: Morning, Chris and Ken. Going back to Peter's question, at Missile Solutions you have an aggressive volume ramp over the next decade. How much of your material spend at Missile Solutions is with sole-source suppliers, and when you firm up your multiyear agreements with the Department of War, are you also going to lock in those key suppliers so you are protected on inflationary pressures?

Christopher E. Kubasik: Thanks, Scott. The answer is yes to the second part. In fact, we have had long-term agreements with the majority of our top suppliers. We are working with them, as you would imagine, to allow them to ramp up as well. Many of those suppliers are making investments on their own, and the Department of War is also helping them either with equity investments or loans. That is going to be, as you imply, key to all of us ramping—the supply chain. That was one of the first discussions going back almost a year with the DoW. They understand the need for the supply chain.

In fact, we are part of the supply chain as a first-tier supplier with the SRMs to the missile primes. Sole-source—maybe at the time of the acquisition there were a lot of sole-source providers. I do not think we really have anything significant at this time. We have clearly focused on getting multiple suppliers, especially with cases, nozzles, and igniters. There are several components that we ourselves are investing in to have an additional second or third source of supply. We are not afraid to make any changes we need to find a way to grow this business. You would imagine people are knocking on our door trying to work for us.

The companies that are willing to invest and play along with what we are trying to accomplish are going to get more and more work. That is going to be the key. I would think by the end of the year, if not already, we do not have any single sources of supply.

Operator: Our next question comes from the line of Pete Skibitski with Alembic Global. Please proceed with your question.

Pete Skibitski: Chris, I was wondering if I could double click one last time on space, particularly on the space pipeline. You talked about the aircraft ISR pipeline that is very robust. Are you seeing the space pipeline—excluding even HPTSS—really growing meaningfully? It seems like the administration is putting a lot of emphasis on space surveillance, that mission area, maybe expanding that. That might be classified. Also this AMTI, kind of moving AMTI from aircraft to space. Are you seeing a real expansion of the pipeline there and might we see increased order flow even beyond HPTSS over the next twelve months or so?

Christopher E. Kubasik: Thanks, Pete. I can assure you the pipeline here I am looking at is in the tens of billions of dollars. A lot of what I talk about is 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. There really is not a big international, if I am honest, with space. There are a few things that we are doing there, but it is all going to be Air Force, Space Force, as you suggested. There are a lot of competitions coming up, and our past performance seems to be positioning us well. There is absolutely a commitment.

I would say the last three to five years has been a lot of one-off demos. I hate to go back to HPTSS, but that was one satellite—and it worked. Now they are ramping that up with the follow-on. That type of approach is occurring throughout that portfolio. Big focus on missile warning, missile defense, hypersonics, classified—some of the areas you mentioned. I can assure you we have the capability. Again, we do not prime everything. There are a few things where we are working as a subcontractor based on our payload capabilities. There are a few places we are a merchant supplier, which is nice because you get on whatever team wins. It looks good.

The team just has to continue to perform. We will get these things launched, and the future is bright. I wish I could tell you more, but this is a classified area, and I think the financial results speak for themselves. We will now take the last question.

Operator: Our final question today comes from the line of Gautam Khanna with TD Cowen. Please proceed with your question.

Gautam Khanna: I was wondering if you could give us some color on the asset sale in the quarter and the legal settlement, and what is embedded for asset sales throughout the year. How far along are we in that process of portfolio shaping? Thank you.

Ken Sharp: Sure. Maybe some quick color. We routinely look at our shop floor space, where the products are in their life cycle. Clearly, we want to continue to keep the floor space focused on things that are higher growth, innovative, delivering capability for the customer. From time to time, we get products that are probably 20- to 30-year maturity. They do not grow really fast. They are great products. They just probably belong in somebody else's portfolio. We tend to look to move those out, free up the shop floor space, and really keep our workforce focused on innovative products.

In the quarter, call it 30 to 40 basis points of margin, give or take, in the missiles business that popped through. We also had negative adjustments on EACs in there as well. They kind of offset one another. For the full year, we will certainly update as we go. I do not think we have any specifics around product line sales built into our guidance at this point.

Christopher E. Kubasik: As we close today's call, I want to again thank our employees for their continued focus and dedication in a dynamic and demanding environment. We have several factories working three shifts, so your efforts are much appreciated. Their work directly supports the men and women who are bravely serving our nation. Supporting the warfighter is at the core of everything we do, and we remain mindful of their safety and well-being during these times. Thank you all for joining us today, and we look forward to talking to you in the weeks and months ahead.

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