Earnings call transcript: L3Harris Q3 2025 beats earnings expectations, stock rises

L3Harris Technologies reported its third-quarter 2025 earnings, surpassing analysts’ expectations with an earnings per share (EPS) of $2.70 compared to the forecasted $2.59. The company also reported a revenue of $5.7 billion, exceeding the anticipated $5.53 billion. Following the earnings announcement, L3Harris’ stock experienced a significant increase of 5.35%, closing at $286.87.

Key Takeaways

• L3Harris Technologies’ Q3 2025 EPS was $2.70, beating the forecast by $0.11.
• Revenue for the quarter reached $5.7 billion, marking a 10% organic growth year-over-year.
• The company’s stock surged by 5.35% post-earnings announcement.
• L3Harris secured a $2.2 billion contract from South Korea, boosting its order book.
• The company increased its full-year revenue guidance to $22 billion.

Company Performance

L3Harris Technologies demonstrated robust performance in the third quarter of 2025, with both revenue and EPS exceeding market expectations. The company’s strategic focus on expanding its manufacturing capabilities and securing significant international contracts contributed to a strong quarter. The 10% organic revenue growth and consistent margin expansion reflect the company’s effective operational strategies.

Financial Highlights

• Revenue: $5.7 billion, a 10% increase year-over-year.
• Earnings per share: $2.70, up 10% from the previous year.
• Segment operating margin: 15.9%, marking the eighth consecutive quarter of expansion.
• Free cash flow: Approximately $450 million.

Earnings vs. Forecast

L3Harris Technologies outperformed earnings expectations with an EPS of $2.70 compared to the forecasted $2.59, resulting in a 4.25% earnings surprise. Revenue also exceeded projections, coming in at $5.7 billion against the expected $5.53 billion, indicating a 3.07% surprise. This marks a continuation of the company’s trend of surpassing market expectations, driven by strong demand and strategic contract wins.

Market Reaction

Following the earnings announcement, L3Harris Technologies’ stock rose by 5.35% to $286.87. This positive market reaction reflects investor confidence in the company’s growth trajectory and strategic initiatives. The stock price movement positions L3Harris closer to its 52-week high of $308.12, showcasing strong market sentiment.

Outlook & Guidance

L3Harris has raised its full-year revenue guidance to $22 billion, indicating confidence in continued growth. The company anticipates sales in 2026 to exceed current financial frameworks and has increased its segment operating margin guidance to the high 15% range. This optimistic outlook is supported by ongoing investments in manufacturing capacity and strategic partnerships.

Executive Commentary

CEO Chris emphasized the company’s strategic positioning, stating, "Our purpose-built portfolio sits at the center of a mission-critical modernization effort." He also highlighted the company’s agility, saying, "We are the company that has the scale and the speed of relevance." These comments underscore L3Harris’ focus on innovation and alignment with national defense priorities.

Risks and Challenges

• Supply chain disruptions could impact production timelines and costs.
• Geopolitical tensions may affect international contract negotiations.
• Changes in government defense budgets could influence future revenue.
• Competition from other defense contractors may pressure market share.
• Technological advancements require ongoing investment and adaptation.

Q&A

During the earnings call, analysts inquired about the improvements in the ISR segment and the company’s approach to collaborating with smaller, innovative firms. Executives also discussed the growth potential of the Aerojet Rocketdyne business and addressed concerns about the impact of government shutdowns on contract awards.

Full transcript - L3Harris Technologies Inc (LHX) Q3 2025:

Tiffany, Conference Operator: Hello and thank you for standing by. My name is Tiffany and I will be your conference operator today. At this time I would like to welcome everyone to the third quarter 2025 L3Harris Technologies earnings call. All lines have been placed on mute to prevent any background noise. After the speaker’s remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press Star then the number one on your telephone keypad. I would now like to turn the call over to Daniel Gittsovich, Vice President, Investor Relations and Corporate Development. Dan, please go ahead.

Chris, CEO, L3Harris Technologies: Thank you, Tiffany, and good morning, everyone. Joining me are Chris and Ken. Earlier this morning, we issued our third quarter earnings release outlining our results and our increased 2025 guidance, along with a detailed presentation available on our website. We will also be filing our 10-Q later today. Before we begin, please note that today’s discussion will include forward-looking statements subject to risks, assumptions, and uncertainties that could cause actual results to differ materially. For more information, please refer to 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, let me turn it over to Chris. Thank you, Dan, and good morning. Our position as a leading defense innovator has never been stronger. The pace of change across the ecosystem is accelerating, and we’re transforming to respond with speed and agility.

Our purpose-built portfolio sits at the center of a mission-critical modernization effort supporting warfighters across every domain for the U.S. and its allies. As the Department of Defense has made clear, the nation needs to transform its acquisition processes to enable an innovative, fast-moving industrial base. The goal is to shorten decision cycles, eliminate bureaucracy, deepen collaboration, and deliver more resilient, rapidly deployable solutions to meet increasing demand. These dynamics underscore the essential role of a trusted, disruptive defense partner. L3Harris Technologies is delivering innovation when and where it matters most. We are the company that has the scale and the speed of relevance and the right mix between established primes and new technology entrants. We continue to execute well, staying tightly aligned with customer priorities and delivering solutions rapidly. That focus is translating into results.

This quarter, we delivered double-digit organic growth, 15.9% margins, and a book-to-bill of 1.2, proof that our strategy is working, our business growth is accelerating, and we are confident in achieving our increased 2025 guidance, exceeding our original 2026 financial framework, and positioning L3Harris Technologies for durable, profitable growth well beyond 2026. We are fully aligned with the administration’s priorities for developing a next generation missile defense architecture. Our actions to date, advancing our missile warning and tracking franchise and investing ahead of demand, demonstrate that L3Harris Technologies is ready to lead. With satellites in orbit, in production and in backlog, we are building on our proven record of designing and delivering missile warning and tracking systems across multiple SDA tranches. As new contracts are awarded, we’re positioned to accelerate production and integration.

With work on additional satellites expected to begin soon, this progress reinforces our role as a trusted, proven partner in advancing the nation’s layered next generation homeland defense network. These efforts are the product of deliberate, forward-looking investments when we have conviction and customer demand. We’ve expanded capacity across our space portfolio from Palm Bay, Florida to Fort Wayne, Indiana, strengthening our ability to execute as new missions are awarded. The foundation is in place, the teams are ready and when called upon, L3Harris will deliver with speed, precision and the resilience our nation demands. Equally important in our strength is the missile and propulsion domain. Our Aerojet Rocketdyne business continues to see exceptional demand, a reflection of both near-term restocking requirements and longer-term investments in deterrence. In particular, the demand for interceptors is exceedingly strong.

We are on every major interceptor program, standard missile, PAC-3, THAAD, as well as Next Generation Interceptor and Glide Phase Interceptor. We are looking forward to continuing to work with the Department of Defense to address this need. We are also on critical strategic missile programs such as Sentinel, as well as certain classified programs, and see those growing for decades to come. This quarter Aerojet Rocketdyne reached a record financial backlog of $8.3 billion, the majority of which is to support the increased demand for solid rocket motors. An example of expanded production in response to growing demand is for the PAC-3 missile where we are increasing capacity. As the sole manufacturer of solid rocket motors for PAC-3, we understand our critical role in scaling capacity across our facilities to meet the heightened and sustained demand for both U.S. and allied customers.

This is a positive first step as the nation looks to significantly increase missile production in the years ahead. Reconciliation funding is pending and awards are expected soon. Against the backdrop of the continuing government shutdown, ongoing budget challenges and the potential for a prolonged continuing resolution, we’re staying focused on what we can control, execution and readiness. We have the right portfolio, the right leadership, and the right investments in place. When funding is released, we’re prepared to continue to invest and move swiftly to deliver for our customers and our nation. We agree with Treasury Secretary Bessant’s push for a new wave of industrial investment. We’re already executing our plan aligned with that vision. Over the past year, we’ve expanded our domestic manufacturing footprint in Alabama, Arkansas, Virginia, Indiana, and Florida, investing in new space and solid rocket motor manufacturing capacity to meet national defense demand.

We’ve increased capital expenditures and continue to direct a substantial portion of free cash flow towards IRAD expansion and modernization. To fully realize this national reindustrialization effort, what’s needed now is to convert clear demand signals into multi-year contracts that give industry the confidence to invest and scale. Our facilities, workforce, and supply chain are ready, and when these demand signals are formalized, we’ll move immediately to the next tier of investment and capacity expansion. At the same time, we share Army Secretary Driscoll’s sense of urgency around modernization. His call to win with silicon and software perfectly captures the transformation already underway across L3Harris Technologies. We’re moving faster than ever, partnering with emerging technology companies, co-developing AI-enabled mission systems, and fielding software-defined resilient communication equipment that can be updated as threats evolve. This is not a theoretical capability or one that we need to validate in technology demos.

It is proven and happening real time in Ukraine by our allies in the face of advanced Russian EW threats. This technology is integral to soldiers’ survival and mission success. Our advantage is speed and adaptability. We combine deep mission understanding with a network of agile partners from Silicon Valley to the defense tech ecosystem. As the services modernize their acquisition process, we see that as an opportunity to expand our role as a trusted and integrator of choice, delivering open, software-defined, resilient capabilities at the pace of relevance. Our approach remains balanced and disciplined, returning capital responsibly while reinvesting in growth infrastructure that directly supports national security. We’re fully aligned with the country’s reindustrialization and modernization agenda, and we’re ready to deliver once that demand is formalized. With that, I’ll turn it over to Ken.

Ken, CFO, L3Harris Technologies: Thanks Chris and good morning everybody. As we continue to execute on critical national security priorities, it’s clear that our investments, manufacturing capacity, and disciplined execution are enabling us to deliver real impact for our customers. With that momentum as our foundation, let’s talk about consolidated results for the quarter. We had $6.6 billion in orders this quarter, resulting in a book-to-bill of 1.2. Revenue was $5.7 billion, reflecting strong organic growth of 10%. This growth was across all four segments, with two growing double digits, and driven by higher volume on existing programs, new programs ramping, and increased international demand. Segment operating margin was 15.9%, up 20 bps. This marks our eighth consecutive quarter of sequential margin expansion, underscoring our consistent execution. Margin expansion this quarter was driven by LHX NEXT cost savings across all four segments and improved program performance.

Margin was slightly offset by the impacts from the higher margin CAS divestiture in Q1 2025. Non-GAAP EPS was $2.70, up 10% year over year. On a pension-adjusted basis, EPS was up 15%. Free cash flow was about $450 million, reflecting temporary customer-related delays in payment. We remain confident in achieving our 2025 cash flow guidance. Q4 reflects anticipated milestone-based payments and the timing of a tax refund now expected in the fourth quarter, consistent with prior years. Cash generation will be back-end weighted as we manage performance on a full-year basis. Turning to our segments’ third quarter results, CS delivered revenue of $1.5 billion, up 6%, driven by increased international deliveries for resilient software-defined communication equipment and next generation JMR program ramp. Operating margin increased to 26.1%. CS margin benefited from international deliveries and LHX NEXT-driven cost savings.

IMS revenue was $1.7 billion, up 17% organically due to multiple ISR classified programs ramping. Operating margin was 12%, a pro forma increase of 40 bps excluding the CAS divestiture. SAS revenue was $1.8 billion, up 7%, primarily driven by increased FAA volume in mission networks and higher volume in airborne combat systems and space. Operating margin increased to 12.1%, reflecting improved program performance on classified development programs in space, a $20 million gain recognized in connection with monetization of legacy end-of-life assets, and LHX NEXT-driven cost savings. Aerojet Rocketdyne delivered another strong quarter with organic growth of 15%, marking its second consecutive quarter of double-digit growth and record revenue. Performance was driven by higher production volumes across key missile and munitions programs and the continued ramp of new awards.

This progress reflects meaningful increases in capacity and deliveries, highlighted by the Mark 72 motor, where quarterly deliveries have increased more than 400% since acquisition. Operating margin expanded 130 basis points to 12.7%, driven by improved program performance and cost efficiencies from LHX NEXT initiatives. Now let me turn it back to Chris. Thanks Ken.

Chris, CEO, L3Harris Technologies: We are continuing to gain momentum, and this quarter underscores the strength of our long-term strategy and portfolio. A prime example is the $2.2 billion award from South Korea secured shortly after the quarter close. It delivered a fleet of next generation airborne early warning business jets using the Bombardier Global 6500 airframe. This landmark international award is significant not only for its scale, but also because it reinforces our position as the world’s premier integrator of missionized business jets. With more than 100 aircraft delivered across multiple platforms, L3Harris is platform agnostic, having successfully partnered with multiple OEMs including Gulfstream, Bombardier, and Dassault. We are the world’s leading mission system integrator with the ability to combine advanced radar, secured communications, and electronic warfare, coupled with our deep civil and military aviation certification pedigree.

More than a single contract, this win lays the foundation for a long-term franchise with opportunities for sustainment, upgrade, and missionized variants worldwide. While it would be reflected in our fourth quarter bookings, it also signals the strong and sustained global demand for our capabilities, furthering our missionization franchise. In August, L3Harris and Joby Aviation announced an agreement to explore a new aircraft class for defense applications. We are rapidly evolving from concepts to physical hardware in direct support of the U.S. Army’s acquisition strategy, with ground testing of the prototype hybrid aircraft already underway. In preparation for a 2026 demonstration, we also secured an award to provide Poland with our Viper Shield electronic warfare system for the country’s F-16 aircraft upgrade program.

This selection demonstrates the growing international demand for our advanced EW capabilities and strengthens our position across the European defense market, where this product suite has been selected by eight countries. It’s another clear example of how our innovation and ability to scale continue to differentiate L3Harris as a trusted partner to U.S. allies. Earlier this month, we announced our award supporting NGC2. The NGC2 ManPAC, the latest evolution of the Army’s software defined radio platform, delivers high data throughput and multiple transport options, ensuring resilience and interoperability across NATO and homeland security networks. Our expertise is critical to this effort. By winning this award, we have an important stake in shaping the communication systems architecture. Together, these and other recent wins, both domestic and international, demonstrate the breadth and competitiveness of our portfolio.

They validate the strength of our strategy, the discipline of our execution, and our ability to convert technology leadership into high value programs that deliver profitable growth. Of course, winning new business is only part of the equation. Execution is what ultimately drives value for our customers. A great example is the successful launch of the Navigation Technology Satellite 3. NTS3 is an experimental navigation satellite designed to test advancements beyond today’s GPS system. This milestone underscores our ability to deliver complex, high stakes systems on time and on budget. Programs like NTS3 reinforce the confidence our customers place in us and the pride our employees take in delivering for them. One of the key enablers of that execution excellence is our program Digital Cockpit, a one of a kind, innovative, integrated, enterprise-wide program management platform.

Built on Palantir’s Foundry infrastructure, the program Digital Cockpit aggregates data from hundreds of sources across L3Harris Technologies’ complex enterprise, providing program teams with real time access to the most critical metrics. By leveraging automation and artificial intelligence, the platform accelerates decision making, strengthens program execution, and drives favorable program performance. Launched in March of this year, we have completed the pilot phase and are now onboarding our first tranche of programs across all segments through the end of 2025. Our strategic partnership with Palantir continues to deliver value, and the program Digital Cockpit is a clear example of how we’re investing in tools that improve execution and outcomes for our customers. Back to you, Ken.

Ken, CFO, L3Harris Technologies: Thanks Chris. Turning to guidance updates for 2025 for the total company, we are increasing revenue guidance to $22 billion, representing full year organic growth of 6%. Just a quick comment on 2026. We’ll update guidance in January, but we do expect sales for 2026 to exceed our current financial framework. We are increasing segment operating margin guidance to high 15% driven by ongoing LHX Next cost savings and continued confidence in strong program execution. We now expect non-GAAP EPS in the range of $10.50-$10.70 per share. We are reiterating our free cash flow guidance of $2.65 billion. While cash generation through the third quarter was softer than expected, we remain confident in the government reopening and delivering our full year cash flow commitments. We expect strong fourth quarter cash performance above prior years.

At the segment level, we are increasing our CS revenue guidance to $5.7 billion, driven by continued strong international demand while reaffirming our operating margin of about 25%. IMS revenue is now expected to be approximately $6.5 billion, driven by strong demand and performance in ISR. We are increasing operating margin to the low to mid 12% range. We are increasing our Aerojet Rocketdyne revenue guidance to $2.8 to $2.9 billion, supported by higher production volumes with operating margins expected to remain in the mid 12% range and we are reaffirming SAS prior guidance.

Chris, CEO, L3Harris Technologies: With that, I’ll turn it back to Chris. At the start of the year, there were understandable questions about what success would look like for the defense industry and for L3Harris, especially in such a dynamic environment. As we close the third quarter, that conversation has shifted. The focus is now on potential upside and a trajectory that extends well past our 2026 financial framework. That change in tone reflects our disciplined execution and the strength of our strategy. We are turning opportunity into tangible results both domestically and internationally, and we expect more to come as reconciliation and missile defense related funding begins to flow across the company. Our leaders and employees understand the high stakes as we are transforming and acting with urgency. Our strategy is deliberate, well calibrated, and delivering measurable results.

It strengthens our position in the global defense market and drives the kind of sustained growth and value creation that underpins our long term vision for L3Harris. Tiffany, let’s open up the line.

Tiffany, Conference Operator: For questions at this time, if you would like to ask a question, press star then the number one on your telephone keypad. To withdraw your question, simply press star one. Again, we kindly ask that you limit yourselves to one question and return to the queue for any follow-ups. We will pause for just a moment to compile the Q&A roster. Our first question today comes from the line of Sheila Kayalu with Jefferies. Please go ahead. Good morning, Chris. Good morning, Ken. Congrats, guys, on a good quarter. Maybe just I could start off on ISR, Chris, because I think that’s the segment that’s been improving the most. If you could just talk about some of your recent wins, South Korea being put in, ramp on multiple classified ISR programs you saw in the quarter.

How do we think about the outlook for that segment and just runway for the business given capacity.

Chris, CEO, L3Harris Technologies: Thanks. Thanks, Sheila. ISR, which is part of our IMS segment, historically was having some challenges. We made significant changes at the leadership level, and we redoubled our focus on execution, and we’re finally seeing it pay off. You know, the backlog has doubled in 12 months, and the outlook is very positive. You mentioned the classified growth on multiple programs. We see that for the foreseeable future, especially as the threats continue to grow. Armed Overwatch, you know, a program that we’ve had for several years, we’re starting to see some interest for that program internationally. We recently announced the C-130 award in Morocco. That line of business is gaining momentum in Canada. There’s a strategic tanker award that’s competitive, that’s coming out here in the near future. We feel confident about our position there.

Our business in Canada has also been selected for the F-35 depot support, and we’re excited about the opportunity with Joby. You know, we are platform agnostic. We’ve historically focused on manned aircraft. I think there could be some pretty interesting opportunities in the short term with the Army partnering with another new entrant. Feel really good about the business. The future looks bright, and the team is executing, and that leads to more business.

Tiffany, Conference Operator: Our next question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Chris, CEO, L3Harris Technologies: Hey.

Good morning guys.

Ken, CFO, L3Harris Technologies: Thanks.

Maybe a bigger picture kind of management question. When you have an organization that’s the size of yours and the scope of yours, big company, and you’re working with smaller companies that tend to have the advantages of just being small, they can move fast, make decisions quickly, that sort of thing, how do you manage that? When you’re working with them, your organization can maybe benefit from their nimbleness, but your organization isn’t stifling their nimbleness because by the nature of just being a big organization, that makes sense.

Chris, CEO, L3Harris Technologies: Yeah, it does make sense and it’s a great question. I think we’re unique in what we’ve been focusing on over the last several years, empowering the leadership team, eliminating bureaucracy, streamlining the layers and levels, and really getting that sense of entrepreneurship. I think it goes back several years with Shield Capital, you know, where we currently own tens, I think in excess of 40 different companies or parts of those companies. That really helped with the culture change because we usually have 24 or 48 hours to turn it around. We feel we’re pretty agile. I interact and my segment presidents interact with the founders, CEOs, chairman, we put teams together and we work rather quickly. We’ve been pretty successful. The interesting part is a fair amount of these new entrants and technology companies actually reach out to us to initiate the conversation.

I feel like we’re the company of choice. The list goes on from Shield AI to Anduril to Amazon, Kuiper, Palantir to 40 or 50 Shield Capital companies. It’s working, it’s part of the DNA. I’ll admit it was a cultural change years ago, but people get excited and like to go fast and see the results. So far so good and maybe even better than I would have expected.

Tiffany, Conference Operator: Our next question comes from the line of Myles Walton with Wolfe Research. Please go ahead.

Chris, CEO, L3Harris Technologies: Thanks and good morning. Chris, I was wondering if you could touch on your outlook for the Golden Dome space-based competitions that you’re looking at. From HPTSS to space-based interceptor to Tranche through the tracking layer and maybe cadence those over the course of the year. The second part of it is on the SAF business itself and the underlying margin performance. I know you’ve struggled a bit with some of the earlier programs. Are we through the woods on those programs and should we take the fourth quarter margin rate as an exit rate into next year? Let me start with your first question and then I’ll ask Ken to comment specifically on the margins. As we’ve said for several years, we feel very confident in our capabilities for what was formerly known as Golden Dome, the missile defense architecture.

HPTSS, as we said, was a success and we’re waiting for the government to reopen. I’m confident that there’s a scenario where maybe we could get an award or a competition here in the fourth quarter. SDA Tranche 3, on that particular one we submitted, the RFP came out in April. There have been many back and forth modifications. We turned in again the best and final in early October. There’s another example where I think we need the government to open up and get back to work and make an award. You’ve heard us say before, we’ve been on all three tranches, we’re performing well. We think our past performance puts us in a position to win that program. I was just at our new factory yesterday. We’ve already moved the Tranche 1 and Tranche 2 satellites in, state-of-the-art factory of the future.

We have the room, we have the equipment and the tools, and we’re ready to go. I feel really good about the space business. We’ve kind of held that out as the symbol of our trusted disruptor strategy, opening new markets. Clearly some growing pains as we’ve grown from a supplier or subcontractor to a prime, but we have the tools, the team, and feel really good about what we’ve done so far and what we’re going to do in the future. Ken?

Ken, CFO, L3Harris Technologies: Sure.

Chris, CEO, L3Harris Technologies: Yeah.

Ken, CFO, L3Harris Technologies: On the second part of the question with respect to SAS margin performance, I would just say as we’ve talked about the couple of the programs that we’ve seen some performance challenges on through the year, those programs are maturing. I think, as we’ve mentioned, nearing completion on some of those legacy programs. Importantly, they are opening up new, continued award opportunities for us. From an SAS margin performance perspective, I think we expect some stability looking into 2026. I don’t know that I would want to give segment guidance on what SAS margin would be for 2026 at this point, but do feel good that I think the performance is really starting to settle down.

Obviously, until we get some of the final integration and stages behind us on a few of these programs, you don’t want to declare victory, but I think we’re making good progress and I look forward to continued solid performance in 2026.

Tiffany, Conference Operator: Our next question comes from the line of Seth Seifman with JP Morgan. Please go ahead.

Chris, CEO, L3Harris Technologies: Thanks very much and good morning. Why don’t you ask Ken when we.

Ken, CFO, L3Harris Technologies: Think about next year and kind of the margin expansion that you’re expecting.

Chris, CEO, L3Harris Technologies: Some of the gains that have happened this year, is that a difficult headwind to overcome for 2026?

Ken, CFO, L3Harris Technologies: Thanks for the question, Seth. No, I don’t think so. Feeling good about our program performance opportunity in 2026. I think that, look, we make sure we find ways to deliver on our commitments. First half of 2025, we had a little bit of negative EACs. I think our negative EAC performance was negative in the first half of the year. We’ve turned that positive here in the third quarter. I think just good solid performance on our programs, getting our net EACs, turn them back to positive. I think that should more than offset, which I wouldn’t say it’s noise in the system, but I don’t think they’re difficult to outgrow the gains here and there from non-strategic product line or IP sales. Again, we’re focused on what we’re focused on, really trying to grow the core areas of the business.

If there’s a few things here and there we can monetize, we do it. I think that’s, to your point, mostly going to be behind us. Now it’s just going to be about performing on our programs, kind of left foot, right foot, just get it done. I think we’re in a good position to do that.

Tiffany, Conference Operator: Our next question comes from the line of Scott Mickas with Melius Research. Please go ahead.

Ken, CFO, L3Harris Technologies: Morning, Ken and Chris.

Chris, CEO, L3Harris Technologies: Just a quick question.

Ken, CFO, L3Harris Technologies: The administration seems to want contractors to have more skin in the game. From 2022 at least through 2024, your IRAD spend as a percentage of sales, I think, declined from 3.5% to 2.4%. Next year, should we expect that IRAD spend to step up?

Chris, CEO, L3Harris Technologies: Yeah, the way I look at it is we have various buckets of IRAD and or R&D. IRAD would be one. We have contracts known as CRAD, contractor R&D. We have our shield capital and other strategic investments that all fuel R&D, and we focus on the portfolio where we think the market is going and we double down and invest in those areas. You know, I don’t really look at it as a % of revenue. We look at what the opportunities are, where we want to invest. We’ve had significant investments in the past. We’ve opened new markets and new portfolios, and once you get that situation, you don’t need to continue to invest in R&D, you’re moved into production and you rely on the production contracts to deliver the product the customer needs. It’s a dialogue, we think.

When I look back over the last couple years, what we’ve made in investments broadly, IRAD, CapEx, acquisitions, we are clearly spending the money to position this company for future growth. I think today’s results and the results year to date and even last year prove that it’s working.

Tiffany, Conference Operator: Our next question comes from the line of Michael F. Ciarmoli with Truist Securities. Please go ahead.

Hey, morning guys. Thanks for taking the question. Chris, maybe just thinking about Golden Dome and space based Interceptors, is this going to be your first foray into potentially competing as a prime for missiles? I know way back at the investor day after the Aerojet Rocketdyne acquisition, you’ve got a lot of that in house capability. Should we start thinking about you guys going after some of these newer programs as a prime, just given the amount of missile demand, low cost missile and capacity that’s needed out there?

Chris, CEO, L3Harris Technologies: I’ll just make a few comments and ask Ken to fill in the gaps here. You know, we stick with our approach of looking at the opportunity and seeing where the best value is for our customers and shareholders, whether that’s priming, subbing, or being a merchant supplier. The demand that we have at Aerojet Rocketdyne is significant. As I mentioned, record financial backlog, huge opportunities that you hear about every day to increase production. We have to, maybe to the earlier question, keep the company focused. Where can we move the needle where our capabilities best align. We spent a lot of time talking about SBI. Ben, you want to update?

Ken, CFO, L3Harris Technologies: Yeah, I would just add that, you know, from a kind of market perspective at Aerojet Rocketdyne, we have significant opportunity in front of us to Chris’s point, not only in the solid rocket motor portfolio, but we’ve got significant backlog in the space propulsion area as well. We’re currently significantly focused on delivering the capacity that is needed by our customers. Right now that’s job number one. Number two, we will certainly be evaluating how we best, to Chris’s point, are positioned across space based interceptors and where we partner and who we partner with and how we look at that opportunity. At the current time, there’s significant demand for our product. You’ve probably seen a number of groundbreaking ribbon cuttings, factories, production lines accelerating, opening, and that’s what we’re focused on at the moment.

As we look forward, we’ll certainly be continuing to firm up those partnerships around space based interceptors.

Tiffany, Conference Operator: Our next question comes from the line of Noah Glass with Goldman Sachs. Please go ahead.

Chris, CEO, L3Harris Technologies: Hey, good morning, everyone.

Ken, CFO, L3Harris Technologies: Hey, Noah.

Chris, CEO, L3Harris Technologies: Hey.

Yeah, thanks. I wondered if you guys could talk more about growth at Aerojet Rocketdyne over the medium term. Chris, you mentioned where the backlog is now. I’m curious how many years of backlog you want to keep. I guess the guidance for this year, midpoint, would land you around 10% growth for the year. Can that actually grow faster than that over the medium term? Just when we speak to your customers, the types of change in production rates that they’re talking about are pretty significant. Last piece of that, Chris, what are you expecting for new competition in solid rocket motors?

Yeah, maybe I’ll go first. Look, the opportunities at Aerojet Rocketdyne and the revenue growth that we’re seeing is significantly more than the business case that we evaluated a couple years ago when we made the acquisition. There’s clearly a huge demand for these existing programs in solid rocket motors. It’s all about capacity. That’s always been the challenge. Ken will give you a little more detail. We are opening facilities. I was just in Camden last week. We’re building new buildings, we’re getting new equipment. You know, the lead time on this sometimes is 12 to 18 months. We’re investing, we’re talking to the customer to formalize, as I said, the demand signal into actual multi-year contracts. We feel really good about our portfolio.

As I said, we’re on every major interceptor program and the advancements we’ve made with some of the tools and the technology is going to allow us to significantly increase production in the years ahead. We’re going as fast as we can. I think in many programs we’re ahead of contractual commitments. We’re going to get as many orders as we can and we’re going to deliver as quick as we can to keep that financial backlog wherever it happens to fall. I think the next couple years are critical as we continue to invest, working closely with the OEMs and the Department of War to prioritize which programs they want, which investments they want. I think in Camden we have over 150 buildings. We could probably build another 50. We have more than enough land and we just need to formalize the actual contractual arrangements to accelerate.

Ken, CFO, L3Harris Technologies: I’ll just add, I think, Noah, you know, it’s important to remember that Aerojet Rocketdyne is not just solid rocket motors for missiles. It’s also got the space propulsion business as well as a very well positioned in space propulsion business that I think is poised for growth also as we look 2026 and forward. You know, confident that we can grow Aerojet Rocketdyne for the foreseeable future.

Chris, CEO, L3Harris Technologies: At double digits.

Ken, CFO, L3Harris Technologies: I think that is absolutely something that we can do. I think if you look at missile solutions, so the solid rocket motor business today, I think we said 17% growth in the second quarter and it’s a solid mid-teens this quarter as well. If you look at the entire portfolio, I think it’s a solid double-digit grower. We’ve certainly been leaning on, I would say, maybe a little bit of ingenuity and kind of student body left in terms of how we’ve been driving the capacity expansion at the moment. To Chris’s point, as some of the new production lines and new facilities come online, it’ll be a much smoother delivery of that continued capacity.

Chris, CEO, L3Harris Technologies: So.

Ken, CFO, L3Harris Technologies: We’re very satisfied with the acquisition, very, very satisfied with how it’s going at the moment, and look forward to continued growing business and, importantly, delivering product to our customers so that they can get it into the warfighters’ hands.

Tiffany, Conference Operator: Our next question comes from the line of Peter Arment with Bayard. Please go ahead.

Ken, CFO, L3Harris Technologies: Yeah, thanks.

Chris, CEO, L3Harris Technologies: Good morning, Chris. Ken, nice results. Hey Chris, you gave some comments about the international business. You know, continue to see strong NATO support. Wonder if you could just give us an update on kind of whether you’re seeing more teaming operations. I know that there’s a lot of talk around, they want countries in Europe want their own indigenous capabilities. Just how are you able to kind of execute that and still expand your share internationally. Thanks. Yeah, thanks Peter. Clearly the international budgets have increased significantly. Those countries are working on getting the best capability they can for their war fighters. Resilience, interoperability are critical. Critical where a lot of our portfolio aligns with that demand and then also supporting their indigenous industrial base. We’ve been partnering around the globe for decades. We have local production capabilities in all of the key countries where it makes business sense.

Again, going back to our philosophy of being indifferent as to whether it’s a prime, sub, merchant, supply relationship, we haven’t seen this to be a challenge at all. It’s being open to the dialogue and creativity. The leadership team has been traveling the globe pretty much every week for the last several months. Huge opportunities we see in Europe. We have a segment president going over there Saturday for a week or so. I just came back from the Middle East, another one’s in South Korea as we speak. We’re all over the globe. I think we’re the partner of choice because of our receptivity in either technology transfer, expanding the footprint, executing and delivering on our offset obligations. We’re about 22% international and we’re headed towards 25% of our base. Good opportunity.

Tiffany, Conference Operator: Our next question comes from the line of Gavin Parsons with UBS. Please go ahead.

Thanks.

Chris, CEO, L3Harris Technologies: Morning. Morning.

What’s a good baseline for the Aerojet Rocketdyne margin? I mean, do you still have legacy contracts that are dragging on that and better capacity utilization as you go forward, or is that strong growth outlook that you talked about going to kind of weigh on the margin?

Ken, CFO, L3Harris Technologies: Yeah, I don’t necessarily expect that strong growth outlook will weigh on the margin. We’re still working through some of the legacy contracts. It is a long cycle. Business takes sometimes 18, 24 months to deliver on a contract. Yes, we are absolutely working through some of the legacy production, but we are transitioning into the newer signed contracts. I’ll remind you, Aerojet Rocketdyne is a portfolio, not unlike L3Harris Technologies overall. We have important development programs that are in the mix as well. That’s, I think, the biggest piece that kind of keeps that margin in the mid 12s, hopefully ramping as we look forward to 2026 and beyond. It’s got important development, cost type programs like a Next Generation Interceptor, like Sentinel Glide Phase Interceptor, really that seed corn for the future production and the future growth.

I think that portfolio kind of keeps it, I think, a very solid margin rate. Importantly, as we get these newly signed contracts in, really starting to deliver the economic margins that are important for us to be able to fund and support the investments that are needed to drive this capacity expansion that we see in order to be able to address the significant demand for the product. I think that’s the way to think about it. Aerojet Rocketdyne is really performing very well on the programs, I think across the board between deliveries for our customers, between delivering financial results and not just capacity delivery, but also quality product safely. That’s critically important as well.

Tiffany, Conference Operator: Our next question comes from the line of Christine Lebog with Morgan Stanley. Please go ahead. Hi, good morning everyone. I guess, Chris, you had called out in your prepared remarks, you know that there’s varied strong demand signals and your strong book-to-bill actually reflects some of this. It seems like there’s still a schism between what these signals actually indicate and what should have been a much higher contract award environment. Can you talk more about what you’re seeing in that gap? What would need to happen for that to close? Is this more on the government shutdown? Is it clarity regarding government priorities? Is it visibility into the supply chain? It would just be really helpful to understand where we could see another acceleration of what’s already a strong book-to-bill environment.

Chris, CEO, L3Harris Technologies: Yeah. Christine, good to hear from you. We missed that quarter endpoint with CREA that would have got us a 1.6 book-to-bill. We’re really doing a great job on the front end of the business over the last year or two. I’m more than satisfied with our win rate and our results and head-to-head competition. The government shutdown is clearly the challenge. It’s disappointing where we are and we need Congress to get together and resolve this situation. As I look at it, there’s clearly an incongruency within the government. The DoD wants to go fast. They meet with us all the time, we gotta go quicker and then Congress can’t fund the DoD. We’re kind of stuck between those two situations. It’s always baffling to me that these issues are unique to the U.S. because we all know our adversaries don’t have this same challenge anyway.

Notwithstanding that, I like our portfolio. The team’s performing, we’re ready to move with speed. In the meantime, the shutdown is definitely impacting the timing of awards and we have a handful that we just need the government to open up and have the decisions made. I think some of our export licenses for international are being slowed down and the cash collections are impacted. People are working at DFAS, but I think with all the headcount reductions and such, there’s just more work than there is people to execute. The government needs to open. We’re a government contractor. 80% of our customer isn’t coming to work. It’s a challenge. We’re assuming they open in November and then we’ll have a busy December to catch up on everything.

Tiffany, Conference Operator: Our next question comes from the line of Richard Safran with Seaport Research. Please go ahead.

Chris, CEO, L3Harris Technologies: Chris, Ken, Dan, good morning, Chris. Good morning.

Ken, CFO, L3Harris Technologies: Chris.

Chris, CEO, L3Harris Technologies: It went quickly, but I think you mentioned something about the need for multi-year contracts in your opening remarks and I have a two-part question on that. First, if you consider the contracting environment and because you’ve been talking about you’re constantly meeting with the customers and stuff, is this something that the government seems amenable to because, you know, it seems it’s been reluctant to execute multi-years in the past. Second part is multi-years typically allow you to get better pricing from suppliers and then at the very least share that savings with the government. Is this change in the contracting environment might impact margins? If so, how do you think that might impact. Thanks. Great question. It was a sentence that I slid in there. This deals with capacity and the need to significantly ramp up and in some cases double, triple, quadruple production.

I think I’ve been consistent for years that the challenge in the defense industrial base, which is why we need to reinvigorate manufacturing in America, is there just is not enough manufacturing capability in the U.S. for defense products. We need more buildings, we need more equipment. These are substantial investments which we are willing to make. It’s a simple business case. Ken and I are not going to spend significant amount of capital without a commitment in the form of a multi-year contract from the government. You’re right, it does give the supply chain more visibility and even allows them the potential to make investments.

If we’re going to double, triple or quadruple production on certain programs, let’s sign up to a five-year, seven-year, multi-year contract and I think the entire ecosystem will look at making the investments and amortizing the cost of those investments in the form of depreciation into the products, getting the benefits of increased production and kind of see where the money lies out. I think we’re getting close. To your first question, I think the customer is absolutely 110% behind this concept. What happened in the past and all these prior administrations and decisions are really irrelevant. I like the new administration. They bring in a breath of fresh air and they kind of say, what do we need to do? They’re business people, we’re business people. We’re in regular conversations and we just need to get pencil to paper here and move to the next step.

I’m optimistic about the future, but that’s clearly what needs to happen. I don’t see why we wouldn’t get to that point. Ken, you’ve been in those meetings with me. What do you think?

Ken, CFO, L3Harris Technologies: Yeah, I’ll just add that, you know, Rich, to your question about multi years, I think this is a little different than what, you know, kind of traditional multi years. This isn’t for nuclear submarines or, you know, aircraft carriers. We’re talking about, you know, largely missile production for which we produce the solid rocket motors and other components. In that business there’s a pretty dynamic portfolio of products. Unfortunately, you can’t just, you know, one morning produce, you know, PAC-3 motors and then, you know, flip a switch and produce standard missile motors in the afternoon. There’s a pretty specific production line. We are working to kind of build some amount of common production and common capacity early in the process. It takes some time.

As we invest, as we work with the suppliers, as we work to modernize and open new facilities and production lines, we really need to know what are we producing, which products at which rate and to what delivery schedule. That’s really what we’re trying to firm up to, is really aligning our investments, aligning our suppliers and their investments to our customers’ needs and delivery dates so that we’re all on the same page, kind of hand in glove, so to speak, in delivering what needs to occur. That’s what we’re really trying to get down to, is firming up the investments rather than, you know, kind of a more traditional, you know, platform multi year award.

Chris, CEO, L3Harris Technologies: Tiffany, let’s take a last question.

Tiffany, Conference Operator: Our last question comes from the line of Ron Epstein with Bank of America. Please go ahead.

Yeah, I just wanted to follow up on some of the NASA work you’re doing. You know, there’s talk of kind of restructuring some of the civil NASA work, and what kind of opportunity does that present for you?

Ken, CFO, L3Harris Technologies: Thanks, Ron. Yeah, from our perspective, you know, NASA certainly is an important customer for us, in particular at Aerojet Rocketdyne. You know, the RS-25 engines for the SLS system is the biggest component of our space propulsion business. We’re excited that the government has provided some additional funding for SLS as a part of reconciliation and firmed up through Flight 5. We’re producing engines through, I think it’s through nine systems there. I think supporting not only NASA, but the government in terms of not just defense, but also space exploration and importantly, getting back to the moon and ultimately to Mars, has not just exploration value, but also strategic value. We’re proud to be a partner on that. We expect it to be a solid part of that space propulsion business for a number of years to come.

I think we’ve got multiple years of backlog in there for production of RS-25 engines as well as other parts of the SLS program portfolio.

Chris, CEO, L3Harris Technologies: All right, let me wrap it up. As we close today’s call, I want to thank all of our L3Harris employees for their commitment, resilience, and passion for excellence in today’s environment. Changing dynamics and challenges can test even the strongest organizations. Our teams aren’t just adapting. They are embracing change while anticipating, planning, and executing with a focus on controlling what they can control. While I and my senior team engage with the customers globally, as the evolving budgetary and threat dynamics continue, as a direct result of their dedication and readiness, we’re delivering for our customers when and how it matters most. Thank you all for joining us today. We appreciate your continued interest in L3Harris, and we look forward to future discussions. Have a great rest of the day. Thank you.

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