L3Harris Technologies Inc (LHX) — Q2 2025 Earnings Call Transcript

Thank you, Sylvie. Good morning, and welcome. Joining me this morning are Chris and Ken. Earlier today, we published our second quarter earnings release detailing our financial results and increased 2025 guidance, along with a supplemental earnings presentation available on our website. We will also file our 10-Q later today. Today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks, assumptions and uncertainties that could cause actual results to differ materially. For more information, please reference our earnings release and SEC filings. We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release. With that, I'll turn it over to Chris.

Good morning, everyone. Our opportunity set is more robust than it's been in decades, driven by increased global threats requiring speed, capability and modernization. These dynamics are unfolding across both U.S. and international markets, creating a significant opportunity for companies that can move fast and deliver on time. L3Harris is uniquely positioned to lead in this environment. Our trusted disruptor strategy keeps us agile, and after investments in the business, along with acquisitions and divestitures, our portfolio is aligned with our customers' mission-critical priorities, enabling us to execute with a sense of urgency as we head into the second half of the year. Over the last few months, I've had several meetings with senior DoD leaders, and one message is consistent and clear: Companies that deliver on schedule will be rewarded with new opportunities such as Golden Dome and missile capacity expansion. I'm proud to say we're doing just that. For example, on F-35, our systems are ahead of need and we are off the critical path for combat-capable TR3 aircraft. Turning to LHX NeXt savings. We set a goal of taking out $1 billion of cost over a 3-year period, and we're currently tracking 40% ahead of that target and a year earlier than planned, putting us on track to achieve our 2026 margin target. At Aerojet Rocketdyne, integration is complete, and we've doubled deliveries, we've doubled production rate and we've reduced the cost of poor quality since the acquisition. This performance gives us and our customers confidence and positions us as a dependable partner. Our second quarter results underscore strong execution and represent an inflection point for our business. We posted our highest organic growth in 6 quarters and achieved a record book-to-bill of 1.5, clear evidence of the momentum behind our strategy and the alignment of our portfolio with the future of warfare. In May, the administration released its full fiscal year '26 budget request calling for about $1 trillion in national defense funding, including $155 billion signed into law through the recent reconciliation bill. The budget is focused in areas where we are well positioned. We're seeing accelerated investments in space-based architectures, missile systems, autonomous platforms and software-defined capabilities, all core strengths within our company. The Golden Dome initiative is a leading example of our alignment with U.S. national security priorities and momentum is building. Congratulations to General Guetlein on his confirmation as the direct reporting Program Manager of Golden Dome, accountable for delivering key capabilities of this system within 3 years as a direct report to Deputy Secretary of Defense, Feinberg. His appointment marks an important milestone for one of the most consequential Homeland Security initiatives in our history, and we're excited to see a proven leader in place. At L3Harris, we've been preparing for this eventuality. As we shared on our last call, our ability to detect hypersonic threats is a critical component of the Golden Dome architecture. We're preparing to deploy a full constellation of 40 to 45 proven HBTSS satellites in a timely manner. This isn't a coincidence as we've invested in Florida and Indiana to scale up space sensor manufacturing and payload integration. We're ready to deliver the HBTSS Constellation called for in the executive order. Moving to ground-based interceptors, our propulsion and divert and altitude control systems support nearly every U.S. interceptor program in development or production. We are rapidly scaling solid rocket motor manufacturing to meet the nation's urgent demand and this effort carries additional personal urgency. I made a commitment to the Deputy Secretary of Defense and the Undersecretary of Defense to increase capacity and accelerate deliveries, and I intend to keep it. In partnership with Governor Sanders and Youngkin, we're investing in Arkansas and Virginia to increase solid rocket motor deliveries and drive record production levels. We're not waiting. We're responding to the clear demand signals and delivering now. Internationally, the outlook remains robust. NATO members are now targeting defense spending increases to 5% of GDP with much of that investment focused on restocking and modernization. This shift is already translating into meaningful orders for L3Harris and supports sustained medium- to long-term international growth for us. A great example, we recently secured software-defined radio awards from the German and Czech armed forces, the type of wins that would not have been likely a decade ago. This represents not only alignment with allied modernization priorities, but also instances where we're replacing indigenous providers, a direct result of our resilient interoperable, battlefield proven technology and expanding global footprint. With this backdrop, the right strategy, an aligned portfolio, strong demand, operational momentum and solid financial performance, we are highly confident in our ability to achieve our 2026 financial framework. We also see a clear path to profitable growth beyond 2026 driven by our alignment with long-term defense priorities both in the U.S. and globally. With that, I'll turn it over to Ken.

Thanks, and good morning, everyone. We are at the onset of a generational opportunity for L3Harris, given our capabilities and positioning across key discriminating technologies. Let's talk about consolidated results for the second quarter. Starting with orders. We had a record $8.3 billion this quarter, resulting in a 1.5 book-to-bill. Revenue was $5.4 billion, reflecting strong organic growth of 6%. This growth was driven by new programs ramping and increased demand across all segments. Segment operating margin was 15.9%, up 30 basis points, marking the seventh consecutive quarter of year-over-year margin expansion. Non-GAAP EPS was $2.78, up 16% year-over-year and on a pension-adjusted basis, EPS was $2.42, up 22% year-over-year. Free cash flow was $574 million, driven by increased operating income and improved working capital performance. Turning to the segment's second quarter results. CS delivered revenue of $1.4 billion, up 2%, driven by increased demand for resilient communication equipment and related waveforms. Operating margin remained solid at 24.4%, reflecting higher domestic volumes and LHX NeXt-driven cost savings. IMS revenue was $1.6 billion, up 6% organically, with an operating margin of 13.2%, up 120 basis points. Revenue increased due to the ramp-up of several classified ISR programs. Operating margin increased due to the monetization of legacy end-of-life assets, partially offset by an unfavorable EAC adjustment from the resolution of a subcontract matter related to lower utilization on the Canadian Maritime Helicopter program. Execution performance on the program was strong. However, payment was tied to customer mission cadence, which was well below original bid expectations. The contract is nearing completion, and we do not expect to see more negative EAC adjustments. SAS revenue was $1.8 billion, up 7% organically, primarily due to increased volume in FAA networks and improved program performance in our airborne Combat Systems business. Operating margin was 12.3%, down 30 basis points due to an unfavorable mix, partially offset by LHX NeXt cost savings. Aerojet Rocketdyne delivered strong results with 12% organic growth and a 2.0 book-to-bill. Growth was driven by improved production volume across key missile programs and new program ramps. This marks the highest revenue quarter on record for AR, driven by the unprecedented demand in the Missile Solutions business that we expect to continue for an extended period. Operating margin increased 50 basis points to 13.3% due to solid performance, LHX NeXt-driven cost savings and a favorable contract resolution. We are always striving to improve our operations, including reassessing certain unfavorable contract positions, rationalizing non-core legacy business lines and monetizing legacy assets. An example is the action we took at IMS to exit an unprofitable legacy contract position, while at the same time, monetizing associated legacy assets. The resulting impacts offset and created a net favorable position for the quarter. Now let me turn it back to Chris.

Thanks, Ken. As we look ahead, several milestones from the quarter highlight our momentum and reinforce confidence in our long-term vision. First, we secured approximately $200 million in orders to deliver software-defined, interoperable communication systems to Germany. Secure, resilient communications across NATO allies are critical to operational readiness and our systems are already delivering on that mission. This award adds to recent wins for our Falcon software-defined radios, including the Netherlands FOXTROT program along with continued momentum on the U.S. Army's HMS programs. These wins further strengthen our market leadership and resilient communications, and our key comm sector backlog today is almost $3 billion, a 50% increase from a few years ago. Turning to solid rocket motors. We broke ground on a new production facility in Virginia, including a cast and assembly center. These modular robotic-enabled facilities will significantly increase capacity, enhance efficiency and quality and reduce product travel time distances by 90%. This complements similar expansions in Arkansas and Alabama. It's a major step forward in building out the defense industrial base and reflects the progress we've made in the short time since integrating Aerojet Rocketdyne. Demand for solid rocket motor production continues to rise, driven by global conflicts. Our Aerojet Rocketdyne Missile Solutions business grew 15% in the quarter and is up 16% year-to-date. Growth, we view as durable and likely to continue for decades. Demand is exceptionally strong, and we see significant opportunities for further investment in the business, expanding manufacturing capacity, increasing the workforce and accelerating deliveries to meet long-term needs and to support sustained growth. We also continue to see strong demand across our space propulsion portfolio. This quarter, we secured a major award for 130 upper stage RL10 engines valued at nearly $850 billion, highlighting our trusted role in enabling space launch missions. Our ongoing partnership with Palantir on the U.S. Army's Titan program continues to mature. The team is nearing initial deliveries on the first 4 AI-defined vehicles equipped with our common data links, Link16, Secure SATCOM and tactical multi-domain waveforms, enabling the Army to process targeting data faster and more effectively on the battlefield. I'm proud to highlight our engagement with the FAA's Newark task force where we played a critical role in supporting Secretary Duffy to meet his goal of enhancing the resilience of our communication networks at the Newark Airport. Our efforts were pivotal in upgrading the telecom infrastructure, ensuring robust and reliable communications for one of the nation's busiest airports. And in the airborne domain, we delivered our second missionized Global 6500 for ISR to the Army, reinforcing our position as the world's leading bizjet missionization provider. With over 100 aircraft delivered and 14 currently under modification, our platform-agnostic approach and speed to field capability continue to differentiate our offerings. Together, these awards and infrastructure investments reflect a common theme. We are accelerating the deliveries of agile, proven solutions to address current and future threats. Back to you, Ken.

First, an update on LHX NeXt, then I'll move into guidance updates. The current phase of the LHX NeXt program is focused on enterprise transformation, deploying the LHX operating system, digitizing core business processes and embedding AI-enabled tools across the business. These initiatives are not only improving execution and decision-making, but they're also building a more scalable, efficient foundation for growth. We're already seeing results from improved operational performance to new business wins, and we expect these transformation efforts to drive sustained revenue growth and cash generation over the long term. Turning to guidance updates for 2025. Our increased guidance reflects our strong first half performance and improved outlook for the rest of the year. For the total company, we are increasing revenue guidance by $200 million, expecting strong organic revenue growth of 5% for the year. We are maintaining and are increasingly confident in our segment operating margin guidance of mid to high 15% supported by continued LHX NeXt cost savings and confidence in strong program execution. Non-GAAP EPS guidance reflects a $0.40 increase from strong first half operating performance and a higher revenue outlook, partially offset by a $0.30 headwind from recent tax reform. While eliminating the requirement to capitalize and amortize R&D expenses, it has some near-term tax rate headwind. As a result, we are raising our non-GAAP EPS guidance by $0.10. We are increasing our free cash flow guidance to approximately $2.65 billion, an increase of $200 million from a combination of operating performance and tax reform. Cash tax benefits from tax reform will continue and also drive an increased free cash flow outlook in 2026. At a segment level, IMS revenue guidance increased $100 million, reflecting strong performance in the ISR sector. Operating margin is now expected in the 12% range, up from the high 11% through improved program performance and LHX NeXt savings. We are increasing our revenue guidance for SAS by $100 million, reflecting an improved outlook in space. Operating margin is expected to remain in the low 12% range. And we are reaffirming guidance for CS and AR. Given our strong performance and this generational opportunity in defense spending growth that we are uniquely positioned to capture, we are also updating our 2026 outlook. On Investor Day in 2023, we set our financial framework at $23 billion in revenue, 16% segment operating margin and $2.8 billion in free cash flow. We continue to expect $23 billion in revenue for 2026, reflecting 6% growth year-over-year. And we previously updated that we expect margin in the low 16% range. Now while investing in key locations like Indiana, Arkansas, Virginia and Florida to fuel future growth from Golden Dome and rocket motor capacity increases and staying aligned with our customers' mission-critical needs, we're also raising our 2026 free cash flow guidance to $3 billion, a 13% increase year-over-year with even stronger free cash flow per share. With that, I'll turn it back to Chris.

Before we turn to questions, I want to take a step back and frame where we've been and where we're going. It's clear how far we've come. Over the past several years, we've reshaped the company through internal investments, strategic acquisitions and divestitures, building a portfolio squarely focused on national security. We've also deepened partnerships across the government and industry to accelerate innovation and mission outcomes. Our trusted disruptor strategy and culture are delivering and have positioned us at the right place at the right time. We're uniquely aligned to the national security priorities of the U.S. and its allies whether that's resilient communications, space superiority or replenishing and modernizing critical missile systems. The awards and milestones this quarter reflect that alignment and will meaningfully contribute to growth in the years ahead. We've also crossed an important operational inflection point. With strong top line momentum and expanding margins, we're executing well across a diverse portfolio, delivering strong performance even as we take on increasingly complex missions. Looking ahead, we expect consistent top line growth with industry-leading margins and increasing free cash flow per share. From 2023 through 2026, our free cash flow per share will have a CAGR of 15%. We are well positioned for sustained profitable growth over the long term, and we'll remain disciplined in our capital allocation. You can expect more details on our forward outlook at our next Investor Day to be scheduled in Q1 of 2026. Sylvie, let's go to the Q&A, please.

Chris & Ken, I have a 2-part LHX NeXt question. First, I thought you might explain the comment in the release about monetizing legacy end-of-life assets. I assume that's part of LHX NeXt and footprint reductions, but I thought maybe you could correct me if I'm wrong there. Second, given your opening remarks from both of you, could you discuss a bit more about how much runway you have left on LHX NeXt cost reductions? I'm wondering if footprint reductions also are going to continue to be part of that.

Yes. Thanks for the question, Rich. Let me focus on the asset monetization first and the footprint aspect of the question. From my perspective, I think this is really about looking at our portfolio where we are investing and where we see kind of the areas of strategic growth. And as we look at that, we do see a couple of areas where some of the product lines don't necessarily align with the areas of growth that we're investing in and really focused on. And as we see that, we look to monetize those product lines. Think of it as taking future revenue and pulling it forward a little bit. So I think we've done a good job of that. And in terms of the footprint, that's I would say more of a tangential benefit. Certainly, it's really about the strategy and the future growth. But as we exit this product line, it will create an opportunity for us to repurpose that footprint into areas that are growing and aligned with the strategy. On the next question on LHX NeXt. Look, we'll continue to drive cost savings. We'll continue to drive facility consolidations and really focus on that. It will become more of kind of our ongoing effort of operational improvement, what we call E3. But the LHX NeXt program from an implementation perspective will largely be through the system by the end of '25.

I want to emphasize that the focus should be on management prioritizing initiatives that will significantly benefit our customers and shareholders. The smaller product lines we have are better suited in the hands of other owners. Currently, we are generating minimal revenue, operating income, and cash flow from these lines over the next few years. I agree with Ken that LHX NeXt will achieve cost savings of 1.4 million or more by the end of the year. We plan to declare success with this program and integrate it into our standard business processes while we transition the company towards a more digital ecosystem, enabling us to access timely and accurate data for decision-making. This is how I envision the future of LHX NeXt unfolding.

Just wanted to follow up with a question on the international opportunities that you both referred to in your prepared remarks. Given the increased defense spending in Europe, what impact do you think that will have for you guys? And what opportunities are out there kind of outsiders looking in, can we kind of keep an eye on?

Yes. Thanks, Ron. We're seeing solid growth internationally. We've always had about 20% of our revenue from our international customers in Europe. As I mentioned in my prepared comments, we're seeing a lot of opportunities really focused on the telecommunications, the software-defined radios in countries that historically went to their indigenous providers. So the importance of interoperability and resilience and security is making a huge difference. Our business jets, missionized business jets, we have opportunities in the Far East and also in Europe as well. So that continues to be a growth market for us. And then, of course, the Mid East, whether we're a prime, a sub or a merchant supplier, we do get the benefits, especially with missile production as a subcontractor go into the Mid-East and other parts of the world. So we feel very confident about our international growth, and I think it's reflected in today's results.

And then, Chris, if I may as a follow on. Do you think you need a bigger footprint in Europe? I mean one of the things that we've heard discussed a lot from the European allies is just they want kind of more sovereignty. I mean how do you think about that strategically for the company?

Yes. I mean our strategy, Ron, has been to partner and bring the best of breed to our customers. So while we have a footprint of employees and infrastructure in certain countries, the partnership model seems to work best. And we've had great success working with other defense and technology companies around the globe. And again, we're not adverse to subcontracting to them, but more times than not, we're the prime and we put them on our team. So that's how it works. In the Mid East, we have a little more of a presence as they like to have the technology transfer in the footprint, but we're agile and we kind of read country by country what needs to be done. I think you recall a few years ago, we opened a factory in Poland for that very reason. So we're happy with the strategy so far, but can adjust if needed.

Chris, the growth and margin improvement that you're predicting or forecasting for 2026, could you kind of rank by segment where you would expect to see the most growth kind of highest to lowest and then seen from a margin improvement standpoint?

Yes, David, it's Ken. I'll take that question. From a growth perspective, we're observing growth in all four segments and we anticipate this trend to continue. However, if you were to rank them based on current demand, Aerojet Rocketdyne appears to be the fastest-growing segment, particularly due to increased solid rocket motor production and recent contracts for space propulsion that Chris highlighted. As we explore opportunities like Golden Dome and SDA tranche 3, we believe SAS will also demonstrate strong growth. CS is positioned to leverage ongoing international opportunities, and IMS is similarly expected to grow. Overall, there are solid growth prospects across all segments. Regarding margin improvement, it primarily hinges on effectively integrating the advantages of the LHX NeXt program along with solid program performance, minimizing risks, and delivering consistently well. We're establishing a favorable rhythm in our delivery process, which is enhancing customer confidence and leading to new awards and opportunities for L3Harris. This is evident in the over $8 billion in awards this quarter and a healthy book-to-bill ratio. Additionally, this performance is contributing to positive margin outcomes. We anticipate this trend will continue into 2026 with a margin rate in the low 16% range.

Yes. And David, the commercial business model is a big contributor to our industry-leading margins and each and every segment is looking in conjunction with the DoD's desire to go faster at more and more commercial acquisition model. So I think it's going to be a matter of which segment, which programs we can transition to more of a commercial model quicker, and that should drive the higher margin sooner. So I think it was December '23 we said each of the segments would grow the margins 100 basis points. We've either achieved that or are tracking to that. So very proud of the team to get over 16% so quickly.

Chris, how quickly can you get the HBTSS constellation contract under contract? And does that become revenue in '25? And then for tranche 3, I think there's an October decision for that outcome. Is your '26 confidence hinge on winning that or does the '26 sales guidance, you have confidence even without winning tranche 3?

Yes. Thanks, Myles. On HBTSS, as you know, the General was just confirmed. He's talking about doing a 60-day study to refine the architecture. So we'll await RFI or an RFP to see how quickly they're going to move. I think, given the fact that this was the only program highlighted in the executive order, we'd be hopeful that we could get something under contract by the end of the year, and maybe that contributes a little bit of the revenue for '25 and clearly a fair amount in '26. T3, it's hard to pull out one particular program, and we've managed more of a portfolio. But clearly, we're going to make our 2026 framework. We're assuming we're going to win T3. If we don't, we'll still find a way to get to 2026 framework. We are proud of the fact that we've had a couple of years of meeting our commitments one way or another. So we manage the portfolio. And as you said, the proposal has been submitted. We're waiting for an October award. There'll be 3 winners. I think based on our performance, based on our cost, based on the customers' confidence in us being able to deliver on time, I'd be disappointed if we don't win that.

I was curious, given the strong bookings this quarter, if Chris and Ken could discuss how you anticipate bookings will trend for the remainder of the year. I understand there are some uncertain factors involved, but I’d like to hear your thoughts on it. Additionally, considering the bookings from this quarter and the past couple of years along with the Golden Dome opportunity, is there a possibility in your scenario analysis that the growth rate could exceed the 4% to 6% range you’ve mentioned for this year, which is reflected in the $23 billion projection for next year? It appears that the Golden Dome opportunity could potentially boost that growth.

Yes, I'll go first and then ask Ken to add a little more. Yes, clearly, there's a ton of opportunities. We try to secure as much business as we can as quickly as we can. $1.5 billion is a record. I think that will be hard to repeat in Q3 and Q4, but we have pretty good visibility and hope to be well over 1 in both of those quarters. And single large awards like T3 or HBTSS, which could be multibillion dollars, some of the missionization on business jets in the Mid East or the Far East, again, billions of dollars of awards can move that pretty quickly. And to the extent you deliver on time, which has been our focus, it does help with the revenue recognition. So yes, I would hope we could potentially do more than 4% to 6%. I don't know if I'd call it a breakout, but we're highly motivated. And as I said, the customer wants to reward and allocate work to companies that are delivering and we're delivering and I expect our backlog to grow by the end of the year and also expect that our revenue will look strong for the foreseeable future. Ken?

Yes. I agree with what Chris said. And from a book-to-bill or awards and backlog perspective, Noah, I think we're looking at a solid second half from an awards perspective. Awards are probably the hardest thing to predict in terms of timing, but certainly, in terms of the number of opportunities we see in front of us, I think we're going to have a solid book-to-bill in the second half of the year. And as Chris mentioned, we should have growing backlog through to the end of '25. So we feel really good about how we're positioned. And I agree with Chris, I think looking at the opportunities in front of us, it does give us, again, confidence to that $23 billion. No single order or a single award is key to hitting that number given the diversity of our portfolio. But I think if a couple of things go in the right direction, we certainly got the opportunity for driving some outsized growth, not just in '26, but as we look forward for some period of time.

On the bookings, the $8.3 billion, can you give us a picture of what the major pieces of that were and how that breaks down by segment given it was a big number this quarter?

Yes, Doug, I can tell you that every segment exceeded 1.0; Aerojet was nearly twice the book-to-bill ratio; SAS was close behind, and IMS and communications were in the range of 1.1 to 1.3. This resulted in a total book-to-bill ratio of 1.53. I'll ask Ken to highlight some of the significant wins, but it wasn't just one particular item; it was spread across all 14 sectors. And yes, you can go through the details.

Yes. Thanks, Chris. I appreciate it. Yes, and Doug, I would say, again, strong book-to-bill across all the segments. If you look at Aerojet with 2.0 book-to-bill, solid orders in both the Missile Solutions business as well as space propulsion. At SAS, really strong orders in Mission Networks and the work it does with FAA and solid positioning for growth in the Airborne and Combat Systems sector. IMS had strong orders at ISR as well as maritime. And then CS, again, we continue to see strong orders from an international perspective. I think Chris mentioned a couple of Germany and Czech Republic. So really solid performance across the board. And I think maybe more importantly, all of those orders are very aligned to the areas that we're investing in and driving the strategy towards from a growth perspective.

Ken and Chris, just wanted to follow up on Chris' comments earlier about the customer wanted to go faster and all that. Is this check coming with an embracement of risk that's appropriate? I mean are you signing up to contracts that are perhaps a little bit racier that you perhaps would like if things weren't going so fast?

Yes. Thanks, Rob. I can assure you we're not signing up to things that are riskier or racier, if that's what you said. No, there's a desire to go fast for the customer. A lot of these awards are follow-on awards, change orders to existing contracts, a lot of classified work in ISR and space this quarter. And it seems like the new administration with their great business background understands business maybe better than prior administrations. And we're receiving cost plus contracts where appropriate and fixed price contracts when we move into production, not a lot of desire to lock in long-term fixed price options for development programs that haven't been developed. So I find them so far to be quite reasonable and kind of enjoyable to work with. So somewhat refreshing in my experience.

Yes, I'll add that moving faster doesn't necessarily entail taking on more risk. The business deals we're engaged in involve close collaboration with our customers. Our contract team is excellent at negotiating favorable agreements and ensuring we're mindful of the risks while committing to the appropriate statements of work. Everything is progressing well in that regard. L3Harris is well-prepared for this situation; we can manage risk while being agile. Our smaller teams focus on ensuring alignments with our strategic goals and profitable growth plans. While we do accept risk in certain areas, we aim to mitigate that through strong operational performance in other segments of the portfolio. Overall, everything is coming together nicely, and our risk profile looks appropriate as I look ahead.

Yes. A lot of this comes from the basis of estimate, and we've now, after several years since the merger of L3 and Harris have been able to build up some data to do a little better job with our parametric modeling and such and using AI and our digital backbone. So we're getting better and better data to base our bids on. So if you get the basis of estimate right, whether it's the hours or the subcontracts, it's going to make it easier to perform and make money. And that's what we're doing. We're submitting bids based on what it cost and in some cases or a lot of cases we're winning. And in some cases, we're not. But we're not going to bid bad deals knowingly just to grow market share.

Chris, I really appreciate the color around the strategy. Any way you could quantify maybe just specifically TDL and Aerojet hitting their stride with Aerojet having the highest revenue quarter. How does that contribute or accelerate '26 growth? And on Aerojet specifically, just increases in production, how are you thinking about the business over the next 5 years and the biggest growth drivers for Aerojet?

All right. Well, thank you, Sheila. I'll say on both these acquisitions that we made in 2023, TDL and Aerojet are exceeding the business model that we built to approve and get our Board of Directors to approve these acquisitions. I'll give a little insight on TDL. I'll ask Ken to talk about Aerojet Rocketdyne. But on TDL, which you don't see the visibility, it's within the CS segment. Since acquiring them in January of 2023, the revenue has been upper single digits, so both accretive to CS and accretive to L3Harris. The margins as a result of the cost synergies and consolidating the facilities in Salt Lake City, streamlining and improving the roll throughput yield and the production capability are almost at the CS segment level, so very high margins, especially on the commercial business model again. And the cash has been very strong, not even considering some of the tax benefits as a result of the way the transaction was modeled. So as we go into year 2.5 here, very pleased with TDL. And again, part of that upside has been our success in getting League 16 into the space, which had never been done before. And I think that's huge opportunities as these various comms and transport layers under Golden Dome evolve in the years ahead. Ken, do you want to talk about Aerojet Rocketdyne?

From Aerojet Rocketdyne's perspective, there is substantial opportunity that requires investment. This business is capital-intensive with long cycles. I mentioned that Aerojet Rocketdyne is expected to be the fastest grower looking towards 2026 and beyond, with Missile Solutions being a significant component. Our investments include collaborating with the government to secure Defense Procurement Act funding for programs like Javelin, Stinger, and others. We anticipate short-term growth, especially in tactical motors. In terms of interceptors, we are working on the PAC-3 standard missile and THAAD, seeing growth and increasing demand that could potentially accelerate as part of the Golden Dome opportunity. Our long-term investments are in large solid rocket motors supporting programs like Sentinel, classified programs, next-generation interceptors, and glide phase interceptors, which, while technically medium-sized, are included in our portfolio. We also support the Missile Defense Agency for targets that could grow in relation to Golden Dome and the testing of new systems. Aerojet Rocketdyne has a diverse portfolio and is well-positioned across important missile programs that are experiencing rising customer demand, which we expect to drive growth for a decade or more.

Yes. So we're going to try to get to $5 billion of revenue by the end of the decade. That's our aspirational goal. I think we have pretty good visibility into that. I will say when I meet with the primes and the end customers, there's nobody disputes that we have, by far, the best technology in this market and I think that's been a differentiator. You heard me say we're on pretty much every interceptor in the U.S., whether it's in development or in production. The large solid rocket motors, I mean, we pretty much have each and every one of those in our portfolio already. So huge, huge opportunities. Again, at the end of the day, it's about delivery and scale. You didn't ask about the new entrants. We continue to meet with new entrants. We look to partner. We welcome the competition. But when you look at the investments we're making, that the primes are making and the government is making in less than 2 years, we're going to have the facilities, the equipment to ramp up and it's going to take others half a decade or more to get there. So I feel very, very confident that this was a good acquisition. We have a great team running it and a highly motivated workforce and couldn't be more proud of what we've done and what we're going to do in the future.

Yes. Great results. I have a 2-part question. In the President's budget request, you may have seen the military radio line items were a little bit softer in '26. Likewise, Armed Overwatch and some others. I wanted to get your perspective on what the growth rate might be beyond '26 for tactical radios and some of those other areas with the backfill from foreign or otherwise? If you could just give us some framework to think about that?

Yes, that's a great question. We'll start with the radios, and then I'll let Ken discuss Armed Overwatch. First, it's the 2026 PBR, which marks the initial step in a multi-step process. We've noticed the reductions in the HMS and comp line items, but there's still a long way to go before we see the final outcome. Historically, input from customers, members of Congress, and ultimately the end users plays a significant role in this process. As for the actual figures, we are comparing two line items, HMS and costs, from 2026 with the same two from 2025, but we've added a third line item called NextGen Command and Control or NGC2. I see these three as related to telecom and radio line items, and combined, they are several hundred million more than in 2025. The question is what is included in NGC2. Our analysis shows that there is a transport layer where we believe our software-defined radios and network capabilities can meet those needs and support ongoing modernization. A lot of the necessary modernization within U.S. domestic operations is likely embedded in NGC2, and our teams are exploring the best ways to move forward. We'll keep an eye on the situation and update you as it develops. I don't anticipate this being a significant challenge given our performance and capabilities, and internationally, we already have excellent opportunities. Overall, the tactical communications and radios sector is expected to continue growing in the foreseeable future. I've not even mentioned the waveforms and other high-margin product sales we have. Now, would you like to discuss Armed Overwatch?

Sure. Yes. Thanks, Scott. From an Armed Overwatch perspective, I would say we did see that there's a dip in quantities in, I think it's 26. No concerns from our perspective. And I think a couple of things. It's a long-cycle program. It doesn't impact our production flow. We've got plenty of aircraft in order, and I think we got a good delivery cadence on that. And maybe more importantly, we're seeing a fair amount of international opportunity for Armed Overwatch that we'll look to drive some awards for. And certainly, if you think about the overall ISR business and as it rolls up to IMS, nothing in that profile from a funding perspective that would impact our ability for growth in the business. So we're tracking it, looking to fill it in with some international opportunity.

Nice results. I wanted to ask, maybe if you could level set us on where things stand in the mission networks piece of the business within SAS? Kind of how big is that now? And it's something that kind of thought of as maybe rolling off over time, but it seems like there's opportunity in the near term given FAA demand and maybe the way that the FAA is looking to do things in the future opens up some longer opportunities as well. So I guess, how should we think about that piece of the portfolio?

Yes. Thanks, Seth. Thanks for the kind words. I'll pass it on to the team. Yes, we don't talk much about the Mission Networks business. I mentioned a few things in my prepared remarks. Our specialty here is really on the telecommunications, the telecommunications infrastructure. And specifically, the migration from the older copper wire to fiber that you might have heard Secretary Duffy talk about. So we were able to successfully upgrade the Newark airport, as I mentioned, which got a lot of press over the last several months, but there's literally dozens of other opportunities and literally thousands of sites that need to transition from, I'll just say, older technology to newer technology, and we're kind of in the sweet spot of doing that. So you've heard about the need for a brand-new air traffic control system. We will not, at this point, have any interest in being the prime integrator or try to manage that whole portfolio. I think there's probably other companies that are better suited for that. We want to stay in our sweet spot, which is really the telecom infrastructure, the broadcast services, the data integration and data services. So all in, I think this sector is right around $1 billion-or-so with good margins, and we would expect this to continue to grow. And it's part of our national security infrastructure supporting the U.S. government. So a good business and clearly more upside today than maybe a year or 2 ago. So the team really came through and did a great job.

Chris, I wanted to ask about the Wolf Pack announcement that you guys came out with. You're effectively going to be competing with Lockheed and Raytheon, who are two of Aerojet's largest customers. I'm just wondering when you initially acquired Aerojet, was that something you decided to do more recently or has it been in the works for a long time? And then long term, what do you see as the revenue opportunity for Wolf Pack both domestically and internationally?

Thank you, Scott. I was uncertain if we would receive a question about the Wolf Pack today, so I'm pleased you're keeping up with our announcements. This initiative has been in development well before the acquisition of Aerojet Rocketdyne. It represents a unique transformational capability, as the Department of Defense service branches require launch effects. We believe we have a distinctive offering in this space. One aspect will involve kinetic strikes, while another will be more aligned with electronic warfare, fitting into the attritable market that is often discussed. We find these solutions to be quite affordable compared to existing products. Our approach will be to start small and gradually expand. We currently have an active production line and have conducted over 40 successful flight demonstrations, generating considerable interest domestically, with future export possibilities still undecided. Depending on the variation selected, this asset can be integrated into larger platforms. Our aim is to secure a couple of hundred million in revenue over the next few years and see how it develops from there. It's an innovative and creative opportunity, and with the acquisition of Aerojet Rocketdyne, we are gaining additional synergies, although these specific assets will not utilize solid rocket motors, which is all I can disclose from a technical perspective.

Ken, just a quick clarification question for you and then Chris, just a bigger picture one, if you don't mind. On the clarification, one, has there been any change, Ken, to your expectations on how much of the LHX NeXt savings you'll pass on versus what gets captured by the customer? I think you've commented on that ratio in the past. And then, Chris, I was wondering if you can just spend a little bit more time on space. I know there's been quite a few questions on it today already. So I appreciate the color there. But I'm just kind of curious the overall demand environment for space and any kinds of new projects that you might see or new technologies, programs that you see on the horizon, either here domestically or maybe even over in Europe and whether European capabilities are going to be something that they're going to spend money on in the space domain here and whether companies like LHX you think might play a role in increased spending in Europe?

Yes, Jason, on your first question in terms of LHX NeXt, no change of any significance from our expectation around the margin opportunity. The program goes out and identifies cost savings opportunities and really make sure that we focus on kind of the run rate opportunities that will impact the longer-term business. We work to generate those savings and then certainly flow it through our contract mix. We do expect roughly 30% to 40% of that to generate a margin opportunity for us, and the remainder will be passed back to the customer through lower cost and essentially providing some benefit to the customer as well as our competitive positioning for winning new work. So no change to the model. Different types of cost savings have different profiles to them. But overall, at a portfolio level, we still expect roughly that 30% to 40%. And Chris?

Yes. Jason, great question on space. We've highlighted this in the past as kind of a key part of our trusted disruptive strategy, how we've moved it up the food chain. We don't really talk a whole lot about some of the things we do for NASA and NOAA, especially in the weather satellites. And weather satellites have a significant military application in addition to all of us looking at our apps and checking the weather on a daily basis. So we actually see some international opportunities using our weather satellite technology, which is the same technology we used to innovate into the missile tracking, missile warning. So there's a lot of opportunities for us. We continue to stick with our strategy in a lot of cases. We're the prime now, which we weren't historically. We still sub on some of these exquisite geosynchronous satellites focused on our great antenna strategy or technology. And we're also a merchant supplier even on some of these transport using Link 16 and some other technologies that we've talked about. So a lot of growth potential. I'll say, since the new administration, I think things slowed down. You see that in across the industry for the first 6 months, as the new administration comes in place as we wait for the confirmation, as we figure out what's going to happen with SDA, MDA, SSC and all these other customers that procure satellites. So I think we're going to pick up some momentum here in the third and fourth quarter as the architectures are finalized. But we pretty much play in every orbital plane, in every size and as a prime and a sub and a merchant supplier. So we're looking for good things out of space. And again, we're performing, we're delivering, and that's going to lead to more business. So as we close today's call, I want to thank my leadership team and our employees for their continued focus, agility and commitment to the mission. More than 90% of my executive leadership team is new to the company who has taken on expanded roles in the last 3 years. The team brings a strong mix of defense industry experience, operational expertise and commitment to advancing national security priorities by investing in talent, technology and long-term growth. We are fearless. We have the courage to defy the status quo and challenge convention. We don't follow trends, we set them, and we're forging original path that advanced mission success. The progress we're making is a direct result of their teamwork, their focus and their commitment. So thank you all for joining us today, and we look forward to connecting with many of you in the weeks ahead. Thank you.