RTX Corp (RTX) — Q4 2019 Earnings Call Transcript

Thank you, De Tamara. Good morning, everyone. Thank you for joining us today on our fourth quarter conference call. The results that we announced this morning, the audio feed of this call and the slides that we'll reference are available on our website at raytheon.com. Following this morning's call, an archive of both the audio replay and a printable version of the slides will be available in the Investor Relations section of our website. With me today are Tom Kennedy, our Chairman and Chief Executive Officer, and Toby O'Brien, our Chief Financial Officer. We'll start with some brief remarks by Tom and Toby and then move on to questions. Before I turn the call over to Tom, I'd like to caution you regarding our forward-looking statements. Any matters discussed today that are not historical facts, particularly comments regarding the Company's future plans, objectives, and expected performance and the proposed merger with UTC, constitute forward-looking statements. These statements are based on a wide range of assumptions that the Company believes are reasonable but are subject to a range of uncertainties and risks that are summarized at the end of our earnings release and are discussed in detail in our SEC filings, and with respect to the proposed merger and related matters in the definitive merger proxy statement filed with us with the SEC on September 10, 2019. With that, I'll turn the call over to Tom.

Thank you, Kelsey. Good morning, everyone. Raytheon had a very successful year in 2019, and our global growth strategy is delivering record results for our shareholders and customers. We had many highlights and set many company records. So let me start by touching on some of our financial results. In 2019, we continued to see strong global demand for innovative solutions, illustrated by our book-to-bill ratio of 1.54 in the fourth quarter and 1.25 for the full year. And for the third time in 2019, we achieved record backlog, which rose to almost $49 billion at the end of the year. This drove an increase in backlog of more than $6 billion year-over-year, up 15%, and it positions us well for the future. Sales are up 6.5% in the fourth quarter and 7.8% for the full year. In 2019, we accelerated our sales growth for the fifth time since 2015. This year, we achieved a new company record for annual sales of $29 billion. EPS exceeded our expectations for the quarter and for the year. Cash flow was better than we expected, and we achieved a new company record for operating cash flow for the full year. Toby will review additional details about the fourth quarter and our 2020 outlook in a few minutes. Now, with all of our successes in 2019, I wanted to share what I see and some of Raytheon's key milestones during the year, successes from across the company that will drive future growth. First, let me highlight the strength at both our classified business and our international business. In 2019, we achieved record classified bookings for the full year of almost $8 billion, and we saw strong classified bookings across the businesses, including $2.8 billion in both missiles and IIS and $2.1 billion at SAS. Raytheon also had record classified sales, which grew 15% versus 2018 and represented 20% of company sales. Our strength in classified is driven in large part by the need of our domestic customers to address advanced threats as outlined in the national defense strategy. As we've said before, classified business is crucial for Raytheon's growth and success. It funds next-generation technology development that is integral to the long-term growth of our future franchises and production awards. We also achieved company records in our international business, both international bookings and sales, and record levels for the year. International sales were $8.6 billion for the year, and year-over-year, international sales have now increased for 16 consecutive years. Turning to our franchises, we further strengthened many of them in 2019 to be long-term value generators for years and decades to come. The newest example of this is our clean sheet offering for the U.S. Army's next-generation Air and Missile Defense radar. In October, we were pleased to be selected to develop the lower tier Air and Missile Defense sensor, which extends Raytheon's position as the world's premier Air and Missile Defense radar capability provider for decades to come. We expect LTAMDS to have potential lifetime value of over $20 billion from sales to domestic and international customers. LTAMDS will operate on the Army's integrated air and missile defense network. Our Patriot franchise continued its momentum with the Kingdom of Bahrain signing an agreement in August to purchase Patriot. This letter of offer and acceptance allows the U.S. government to begin contract negotiations with our Patriot team. Bahrain is the 17th nation to procure Patriot. With the U.S. approval, all 17 of these Patriot partners will have the opportunity to add the LTAMDS capability to each of their fire units. This will enhance the performance and extend the life of their systems for many decades. In addition, the capabilities of the LTAMDS radar also open up a market for standalone forward-deployed applications. Our Patriot system fires multiple interceptors, including our guidance enhanced missiles or GEM-Ts. During the fourth quarter, we booked over $700 million on a direct commercial contract to provide GEM-T missiles for an international customer. Demand for integrated air and missile defense solutions is also furthering growth in our NASAMS franchise, a mid-range solution, jointly manufactured by Raytheon and Kongsberg. In 2019, we added two new countries to the NASAMS family. In May, we booked over $500 million to provide NASAMS for Australia. In July, we received a $1.8 billion award to provide Qatar with NASAMS. Qatar is the 11th country to procure NASAMS, which uses a Raytheon radar and will be capable of firing multiple interceptors, including our AMRAAM-Extended Range and AIM-9X missiles. As a result, NASAMS helps support the growth of additional franchises AMRAAM and AIM-9X. For AMRAAM, Raytheon is continuing the development of AMRAAM ER and expanding its capabilities to support land-based applications. This significantly extends both the range of AMRAAM and the market of the NASAMS system. Qatar will be the launch customer of AMRAAM ER. As part of the procurement of the NASAMS systems, we expect the foreign military sales contract award from Qatar for AMRAAM ER in 2021. Our airborne radar franchise was extended in July with our selection as a radar supplier for the B-52 radar modernization program, displacing the incumbent. Under the contract, Raytheon will design, develop, produce and sustain the use of radar systems for the entire U.S. Air Force B-52 fleet. With improved navigation reliability, mapping, and detection range, the advanced radar upgrade will ensure the aircraft remains mission-ready through 2050 and beyond. We continue to see strength across our standard missile franchise, including the multiyear award for SM-6 and then the bundle award for SM-3 Block IIA, both of which were booked in December for a total award value of around $3 billion. We still expect a multiyear contract award for another SM-3 variant, SM-3 Block IB, worth about $2 billion in the first half of 2020. The endo-atmospheric SM-6 delivers a proven over-the-horizon offensive and defensive capability and supports anti-air warfare, anti-surface warfare, and sea-based terminal ballistic missile defense in one solution. In the next generation SM-3 Block IIA, the interceptor defeats missile threats outside the Earth's atmosphere and is produced in cooperation with Japan. With the recent and expected awards for our Standard Missile product lines, we have production visibility until at least 2026. Both the SM-3 Block IA and IB are integral to MDA's position in missile defense. This month, after the quarter closed, IIS was selected by the U.S. Air Force to develop the future operationally resilient ground evolution program, also known as FORGE. This newly developed open framework will be capable of processing overhead persistent infrared satellite data from both the U.S. Air Force's evolving SBIRS constellation and the future Next Gen OPIR constellation for missile warning. Also in January, we were awarded the fourth element terminal by the U.S. Air Force, which extends our protected communications franchise at SAS. Finally, one of our most notable highlights of 2019 was announcing our transformational merger of equals with United Technologies. These two industry-leading companies will create one of the best positioned aerospace and defense companies. Raytheon Technologies will have a diversified platform-agnostic suite of offerings that are balanced across end markets, which is a key differentiator through business cycles. The combined company will also have a vast global footprint. By combining our complementary technologies, we can pursue and win an increased number of new franchises. We expect the revenue synergy opportunities from our combined technologies to continue to be value generators for decades to come, positioning the company to increase market share and outgrow the aerospace and defense markets. Integration planning for the merger is progressing well and the merger is targeted to close early in the second quarter of 2020. As we start the new year, we feel optimistic about the future and our ability to continue to grow, both domestically and internationally. We are pleased with the fiscal year '20 appropriations bill enacted in December, with our Raytheon programs faring well, and the DoD monetization account up versus fiscal year '19. Fiscal year '21 budget control act caps were increased last year, so we have top-line certainty and include a modest increase in the DoD base budget. Perhaps best of all, fiscal year '21 is the last year on the BCA. Bottom line, we have a strong foundation for the future. This was recognized last week in Fortune magazine's annual survey. Raytheon was ranked the number one company in the aerospace and defense industry in the 2020 study of the World's Most Admired Companies. It's included number one rankings in key attribute categories such as innovation, financial soundness, global competitiveness, and social responsibility. Let me close by thanking all the members of the Raytheon team worldwide. When I think about our many successes in 2019, I do so with deep appreciation for my dedicated colleagues who made it possible. They are the ones helping the company grow and meet its commitments, create value for shareholders, and provide the trusted, innovative solutions our customers depend upon. Given the expected timing of the merger's close, this could well be the last earnings call for me and for Raytheon Company. For nearly 100 years, this company has provided mission-critical technologies to our customers, supported a diverse and engaged workforce, and has been a good corporate citizen. That legacy built on a foundation of trust, respect, collaboration, innovation, and accountability will continue. We are excited to redefine the future of the aerospace and defense industry as Raytheon Technologies. With that, let me turn the call over to Toby.

Thanks, Tom. I have a few opening remarks, starting with the fourth quarter and full-year results. Then I'll discuss our outlook for 2020. After that, we'll open up the call for questions. During my remarks, I'll be referring to the Web slides that we issued earlier this morning, which are posted on our website. On Pages 2 and 3, we have our fourth quarter and full-year highlights and summary results for the year. We are pleased with the strong performance the team delivered in both the fourth quarter and the full year with bookings, sales, operating income, EPS, and operating cash flow that all met or exceeded our expectations. We had record bookings in the fourth quarter at $12.1 billion, resulting in a book-to-bill ratio of 1.54. For the year, we also had record bookings of $36.3 billion, resulting in a book-to-bill ratio of 1.25. This sets the stage for continued strong growth in 2020, which I'll discuss in more detail in just a few minutes. We achieved record backlog of $48.8 billion, up 15% year-over-year. Sales were $7.8 billion in the quarter, up 6.5% from the same period last year, and we saw growth across all of our businesses. For the year, sales were up 7.8%, reaching a new company record of $29.2 billion. Our EPS from continuing operations was $3.16 for the quarter and $11.92 for the full year. I'll give a little more color on EPS in a few minutes. We also generated strong operating cash flow of $2.8 billion for the quarter and $4.5 billion for the year. It's worth noting that we exceeded our operating cash flow guidance by approximately $400 million at the midpoint and achieved a new company record for operating cash flow. This increase was driven by operations and improved working capital. The company ended the year with a strong balance sheet and net debt of approximately $500 million. Now turning to Page 4. Let me go through some of the details of our fourth quarter and full-year results. As I mentioned earlier, we had strong bookings of $12.1 billion in the quarter and $36.3 billion for the full year, resulting in a record backlog of $48.8 billion. This is an increase to backlog of over $6 billion or 15% over year-end 2018, providing us with a strong foundation for the future. International orders represented 28% of our total company bookings for both the quarter and the full year. At the end of 2019, approximately 38% of our total backlog was international. Turning now to Page 5. We had fourth quarter sales of $7.8 billion, an increase of 6.5% compared with the fourth quarter of 2018 and in line with our expectations. International sales continue to be strong, representing 31% of our total sales for the fourth quarter and 29% for the full year of 2019. So looking at the businesses. IDS had net sales of $2 billion in the quarter, up 18% from the same period in 2018, primarily due to higher net sales on an international air and missile defense system program awarded in the third quarter of 2019 and an international missile defense radar program. IIS had net sales of $1.7 billion in Q4, up 2% compared with Q4 2018. Net sales at missile systems in the fourth quarter were $2.3 billion, up compared with the same period in 2018. For the full year, missile sales of $8.7 billion were up 5% over 2018. It's worth noting that missiles had strong bookings performance for the full year 2019 with bookings up 23% over the prior year. In the fourth quarter of 2019, SAS had net sales of $2 billion. The 7% increase from the fourth quarter of 2018 was primarily driven by higher sales on classified programs, the Next Gen OPIR program, and tactical communication systems programs. For the full year, total company sales were $29.2 billion, up 7.8% over full-year 2018. Moving ahead to Page 6, we delivered strong operational performance in the quarter. Our operating margin was 16.3% for the total company. On a business segment basis, our operating margin was 12.7%, up 70 basis points and higher than Q4, 2018, primarily due to higher net program efficiencies. Total business segment operating income of $993 million grew $109 million or 12% in the quarter. So now looking at the business margins. IDS fourth quarter 2019 operating margin was strong at 15.5%, up 80 basis points compared to the fourth quarter of 2018. IIS operating margin of 8.6% was up 20 basis points compared to the fourth quarter of 2018 and better than expectations. Missiles operating margin was 12.7% in the quarter, up 90 basis points compared to Q4 2018. The fourth quarter of 2019 benefited from a favorable change in program mix and higher net program efficiencies. SAS fourth quarter 2019 operating margin was 13.8% and in line with the fourth quarter of 2018. SAS had a $21 million gain from the sale of real estate, which was assumed in our fourth quarter 2019 guidance. Turning to Page 7, we have solid operating margin performance for the year. Our operating margin was 16.4% for the total company and 12.1% on a business segment basis, an increase of 10 basis points compared with 2018. Total business segment operating income was $3.5 billion in 2019 and was up $290 million for the year or 9% over full-year 2018. On Page 8, you'll see both the fourth quarter and full-year EPS. In the fourth quarter of 2019, our EPS was $3.16, and for the full year, it was $11.92. Both the quarter and full-year were higher than the comparable periods in 2018, primarily driven by operational improvements from higher sales volume and favorable pension-related items. Overall, we have strong operating performance for both the quarter and the full year. Now, let me update you on our 2020 outlook on Page 9. As we sit here today, we currently see the book-to-bill ratio above one and would expect to achieve another record backlog year. We also see strong sales growth for 2020 for the underlying Raytheon business of 6% to 8% over our 2019 results. Additionally, we expect growth across all of our businesses. We would expect IDS and SAS, our highest margin businesses, to have higher growth rates than the others, both with expected sales growth of 6% to 8% versus 2019. At IIS, we'd expect sales growth of 4% to 6%. At missiles, we would expect sales growth of 5% to 7%. Although not on the page, I want to spend a minute talking about our expectations for the first quarter of 2020. We remain confident in our growth rate of 6% to 8% for the full year 2020. We expect the first quarter sales growth to be in the low single digits due to a tough comp with last year's first quarter. We see the sales growth profile of 2020 as second-half weighted, with sales ramping up throughout the year, driven by strong bookings in the second half of 2019. Before concluding, I want to touch on the pending merger with United Technologies. The collaborative merger efforts and integration planning between Raytheon and United Technologies are continuing to progress well. We look forward to the next steps in the process, including continuing to work closely with regulatory authorities in the U.S. and other jurisdictions to secure the required clearances and approvals for the merger. We are targeting the merger to close early in the second quarter of 2020. Post-closing, we look forward to Raytheon Technologies delivering strong free cash flow growth and deploying a significant amount of its free cash flow to its shareholders in the form of share repurchases and dividends. Let me conclude by saying that 2019 was a very successful year for Raytheon, where we once again delivered strong financial results. We set many new company records in 2019, including record operating cash flow, backlog, bookings, and sales and records for both sales and bookings in the classified and international areas. We have a strong balance sheet, which gives us a strong foundation as we move forward with the merger. Our business segments are well-positioned to grow in 2020 and beyond. So with that, we'll open the call up for questions.

I have a quick clarification and a question regarding the IDS growth, Toby. It seems like the impact on the topline for the 3Q '19 award is quite significant. Was this work that was completed and put under contract? I would appreciate your insights on that. Additionally, Tom, could you provide some insight into the customer's direction regarding the three dealer changes? Thank you.

So on IDS, you know Carter, we're real pleased with their performance for the quarter and the year. The 12% growth they delivered in '19 was really strong. But yes, you got it right. There was some inventory liquidation that took place in order to ensure we had the right schedule cadence on the program going forward.

On the three dealer program, you may recall that we initially secured it in 2014. It faced various protests and challenges, resulting in a unique start due to the pushback. The technology baseline dates back to around 2008 when the Air Force solicitation efforts began. By the time we were able to move forward post-protest, there had been many advancements in technology, but we still had a somewhat rigid baseline. They aim to refresh the technology and shift to an OTA structure, which they believe will expedite the program. They will hold an industry day with more details, during which they plan to conduct a sense-off similar to the one the United States Army held for the LTAMDS radar. Last year, after that sense-off, we successfully won that program with our proposed solution.

The only thing I would add, given the state of where the program was at from a development point of view, it doesn't have a material impact on our financial results for 2020 and even the next year or two beyond that.

Tom, while we have you. How do we think about IDS and profitability mix, given FMS sales pick up and just the cadence of those? And related to that, how do we think about Patriot international opportunities with the LTAMDS win in the U.S.?

I think IDS has a really bright future. They have the largest content of international. They've also developed some key franchises here recently, like the Air Missile Defense Radar or the Spy 6 for the DEG-51s. The Navy is pushing for 350 ships, and a lot of them will be frigates, and the EASR has already been designated as the radar for those frigates. I think that's a good sign for moving forward. They also won the lower tier air missile defense sensor, which is the LTAMDS for Patriot. As we mentioned during the scripts, that's got about a $20 billion future here, both for domestic and international customers. Just last year, Bahrain became our 17th country that has the Patriot system. So we have 17 countries that we work with on the Patriot system, and they are buying spares, aftermarket efforts in those areas. They also continue to buy new solutions for the Patriot System, including the new solution to significantly enhance the capability of the Patriot system, called the LTAMDS radar. There is opportunity for over 240 of those radars over the next decade or so, so they are very strong across the board in terms of new franchises coming on board and refreshing the Patriot franchise. In the international marketplace, they've done quite well by balancing both the FMS, which has higher margins than domestic, but also bringing on quite a bit of what we call DCS, Direct Commercial Sales business, which has higher margins than FMS. All in all, I think IDS is on a very strong foundation and they've built a launch pad for increased success through the decade.

And maybe I can just add a little bit, and I'll start at the highest level of a company. We're not giving guidance for 2020 consistent with what we said back in October. But that said, I would tell you specifically around margins, nothing's changed. We still see the opportunity to improve margins incrementally going forward and improve our operating income overall. As far as IDS in there, FMS and DCS mix, in the near term, yes, that's a headwind. It's a good problem to have given the volume of the FMS work coming in, and we still have solid DCS work. I would tell you, and remind you, I think you all know IDS has been historically our highest margin business. We expect that to continue in the future. We talked about the improved margin in Q4 for the company, a lot of it through net program efficiencies, and IDS was a big contributor to that. We expect strong performance from IDS going forward. Let me just expand a little bit on LTAMDS because back when we were awarded in October, we mentioned that the contract vehicle here is an OTA. Given that, I think as folks know that does require periods of investment, and we're going to experience that here for Raytheon. We have been spending on this for a while. We are delivering six production representative units under the contract, it's about a three-year effort. The majority of the costs are going to be incurred in 2020. You might have seen in our release, we took a $13 million expense at the corporate level related to LTAMDS. We're managing this as a corporate project given the strategic significance tied back to the $20 billion opportunity and standalone opportunities. Consistent with that, we'll be recording an expense throughout the year at the corporate level, probably in the $200 million range plus or minus, and then it would tail off into 2021 as well. There's no impact on the IDS margins or the IDS segment margins as a result of that.

You mentioned that your fastest growth is in IDS and SAS, which are your highest margin businesses, excluding the $200 million investment in LTAMDS. Should we assume that your margins would be higher if you were a standalone company?

So I think Cai, again, both for 2020 and beyond, I think we've been consistent. We are on a path to incrementally on an annual basis improve margins. Our segment margins were up 10 basis points in 2019 compared to 2018. That said, we do have to think about mix impacts. And as Sheila asked and I just mentioned, we do see some mix with more FMS and less DCS in IDS, but we are focused on operational excellence and driving more efficiencies through the business. Missiles, as an example, we expect their margins to improve after some challenges they had in 2019. We expect their margins to improve in 2020. Big picture kind of punchline is yes, there is a standalone business. We would expect the company segment margins to incrementally improve in 2020 and beyond.

Just on the remaining 19% for the fourth quarter. Just curious if that now allows you to or pushes you to pursue process there. And also, how indicative is the price you pay Vista to what you think you'll get in the open market? And maybe Toby, can you just give us where the pension ended? Thanks.

So let me start with the fourth point part of your question. Back when we acquired Websense almost five years ago, we had disclosed the liquidity rights that both sides had. I think we and Vista hadn't been aligned all along. Ultimately, the endgame here was to monetize the investment in Forcepoint. They chose to do it through the foot process. We followed a very stipulated process per our agreement with Vista. We had outside advisors involved. Amongst other things, it took into account market conditions, comparable trading companies, etc. At the time, yes, we think it is indicative of that. Obviously, at the end of the day, we still want to monetize the asset. We’re going to do that smartly, evaluating all of our options. The whole software security market continues to trade pretty favorably here, and as we move along, we'll be looking to do what makes the most sense for the company and shareholders around that. Switching over to the pension, we had a return of about 19% for last year compared to our 7.5% long-term assumptions. The discount rate that we're using for 2020 is down about 100 basis points from what it was last year, it's at 3.3%. We also updated our long-term return on asset assumptions and reduced that from 7.5% to 7%. That all said, I'll remind everyone that once the merger closes, because of purchase accounting, there will be some significant changes in this area. SAS operating and non-operating expense will improve as a result of that. Also, there will not be an impact on our CAS recovery if you want to think about this from a cash flow perspective; that the CAS recovery stays intact.

I want to ask about the cash flow. Obviously, very strong performance this year, I think it came in $700 million or so above what you were thinking or what was in the S-4. Does any of that represent any sort of working capital pull forward that you had expected to come through in '20? Because I know what's in the S-4 looks like it reflects some pretty big working capital benefit. And then I think CapEx came in a little lighter than what you were thinking. Can you just address kind of the CapEx profile from here as well? Thanks.

So on the cash flow, I’m really pleased with how the company performed and delivered and overachieved in this area. It was from improvements in working capital, all program operational related. That said, again, we're not giving guidance for 2020. But I would expect excluding the effects of the merger, so taking the merger-related costs and cash impacts out of it, I'd expect stronger cash flow in 2020 despite the overperformance in 2019. Said another way, it's not a timing issue. You're not moving from one year to another. That’s indicative of our focus on running the business, executing the business, and obviously having a strong balance sheet for the first part of your question. Secondly, on CapEx, we had talked about 2019 being a peak year for capital spending. We still feel that way, even though it did come in a little below what the original expectation was. As far as 2020 goes, we expect it to be down a little bit further, albeit slightly of the reduction compared to what we were expecting in 2019. Some of that was permanent where we found ways to do things more efficiently and a little bit of it was timing that moved from 2019 to 2020. We're on a downward trajectory consistent with what we have said this time last year.

Toby, can you tell us what's actually happened in missiles? I mean, the sales growth this quarter was clearly below your revised guidance, and for 2020, we're not expecting a lot of growth on the positive. The margin got a lot better. But what’s happened on the sales side for what was compared to what we're seeing?

So for Q4 overall at the company level, the 6.5% growth contributed to 7.8% for the year, that was within the range we expected. You're right, missiles were a bit lower than we previously expected. We saw a little bit more strength in some other businesses. The way to think of missile sales in the fourth quarter was really some supplier delivery volume on a couple of production programs that we were expecting didn't materialize. We had a few awards that had some inventory liquidations that were a little less than expected. That said, the way to think of missiles going forward is they closed the year very strong, as I mentioned, relative to their bookings being up 23% year-over-year. Tom, in his opening comments, spoke about $3 billion worth of awards in the Standard Missile family that came in the fourth quarter. One of those was – the second multiyear for the SM-3 Block IB, we expect in the first half of this year. We believe all that taken as a whole supports and provides a foundation for missiles to grow at a higher rate than we saw in Q4 again in the 5% to 7% range for the year.

Thomas, this could be your last opportunity. I was wondering if you could give us your usual run-through of what you're seeing at the moment in some of these key export markets. You've seen another good year of bookings. I was wondering how that could progress from here?

I'll start in Europe. We have seen significant growth over the last several years there, largely driven by our administration encouraging these countries to meet the NATO guideline of 2% of GDP for defense. We have observed increased demand for Patriots in countries such as Romania and Sweden. There are also additional opportunities in that region for integrated air and missile defense, as well as military system upgrades. In the Middle East, the demand for our solutions remains substantial. As demonstrated in Iraq, any forces in that area require integrated air missile defense capabilities to protect troops, resources, and infrastructure. Consequently, we are witnessing significant demand for integrated air and missile defense solutions, which include countering drones, ballistic missiles, and cruise missiles. This aligns well with our core expertise, and we are already performing effectively in that region while anticipating considerable growth potential in the Middle East. In the Asia Pacific region, North Korea continues its testing activities, raising considerable concerns, particularly for South Korea and Japan. In South Korea, there will be a transition of defense responsibilities from the U.S. to their government, which will necessitate our assistance in providing the required solutions for their defense. Japan is also experiencing increased demand due to pressures from China, especially regarding expansion in the first and second island chains, prompting Japan to seek enhanced defense capabilities. We are collaborating with the Japanese government to deliver advanced solutions. In all the regions we are involved in—Europe, the Middle East, and Asia Pacific—we observe strong demand signals for our solutions. We have developed several new offerings, including the SPY-6 radar, the EASR, and the LTAMDS radar, and we are diligently working in these markets.

Robert, I just want to quantitatively reinforce that last year was a record year for international, including bookings. We're seeing those results of that threat environment materialize in our results. We talked about a 1.25 book-to-bill; both domestic and international book-to-bill were around that. So it was not one side of the house driving the growth. We mentioned 28% of the bookings were international, 38% of the backlog, 29% of sales and we’d expect that same level of contribution from both in 2020.

Toby, if I just look at the guidance for the individual segments and the proportion of the company, looks like the growth for 2020 would come in more at the 6-end than 8-end. Is that the right takeaway at this point? And where might there be potential upside?

No, I think the way to think about it is that range is 6% to 8%. We're not being specific beyond that. Don't forget that's total sales, and we didn't talk about what would happen with eliminations. Those numbers exclude eliminations, which are close to in line, and we expect them to be close to 2019. So that may be part of what drove you to that question, the 6% versus either the midpoint or something else. We are confident in the range of 6% to 8%, the strong backlog, the $49 billion in backlog, up 15% growth across all the businesses where we expect that to happen consistent with what we've laid out there, so no concerns on our end.

Tom, we know you're not going anywhere. But thanks for all your guidance over the years. Toby, just back to kind of a follow-up on Seth's question. If we look at the 6% to 8% off the base of 2019 and we compare it against what you had out there for 2021, it really seems closer to 2021 numbers. What would you highlight as the differences? I assume the LTAMDS might be one of them or so. Thanks.

LTAMDS would not be one, Peter, just because of the nature of the OTA and kind of as I described before, the funded R&D concept. Right now, we're not recording revenue on that. We're really treating it as funded R&D and the related expense I talked about earlier. Just as a reminder from the origin of that S-4 data, we discussed in the S-4, the process that led to the merger and the timeline around that. That S-4 data, the origin predates that, so you must go back to 2018 for when we pulled that together. Last year, we ended 2018 with a backlog growth of 11% that was better than our expectations, and a similar thing happened here with the 15% increase, including multiple increases in the bookings outlook throughout 2019. This highlights the underlying strength of the business and how well positioned the portfolio was.

Obviously, much you can say on this topic, but at a high level. How is the classified arena evolving as you prioritize areas? Can you help us understand the pro forma RTS exposure in that market once the deal is closed? I asked because I didn't really hear you guys talk about hypersonics in your prepared remarks either. So if you want to somehow pull that in. Thanks.

Hunter, let me just talk a little bit about classified. It's classified if we can't talk about it. It's driven out of the national defense strategy, which outlines the next-generation capability that the United States needs to defend itself against new evolving threats. That really sets the overarching requirement. From there, we go down to what actually has to occur. The NDS calls out the need to protect space, so there's a whole set of efforts to ensure we protect space and space assets, which are crucial for both our economy and national security. There’s also a large focus on missile defense capabilities and how to defend the nation against threats, including hypersonic weapons. A counter hypersonics and counter advanced intercontinental ballistic missile threat type work is ongoing. Finally, there’s significant concern regarding the South China Sea and the technology we need to maintain our presence and kepping these sea lanes open. Starting with the national defense strategy, the greater the classified work we have, the stronger our future will be, enabling us to generate new franchises lasting decades. The classified bookings represented 22% of our total bookings in '19, were up 17% over 2018, setting a new company record. This enhances the company’s future prospects.

That's all the time we have today. Thank you for joining us this morning.