L3Harris Applied sciences Inc (LHX) This fall 2025 Earnings Name Transcript | AlphaStreet – Imperial Wire

L3Harris Applied sciences Inc (NYSE: LHX) This fall 2025 Earnings Name dated Jan. 29, 2026

Company Contributors:

Christopher Kubasik — Chair & Chief Government Officer

Kenneth L. Bedingfield — Senior Vice President and Chief Monetary Officer

Tony Calderon — Vice President, Investor Relations and Company Improvement

Analysts:

Kristine Liwag — Analyst

Myles Walton — Analyst

Noah Poponak — Analyst

John Godyn — Analyst

Peter Arment — Analyst

Sheila Kahyaoglu — Analyst

Gautam Khanna — Analyst

Scott Mikus — Analyst

Seth Seifman — Analyst

Doug Harned — Analyst

Robert Stallard — Analyst

Michael Ciarmoli — Analyst

Presentation:

operator

Welcome to the L3 Harris Applied sciences fourth quarter 2025 earnings convention name. At the moment, members are in hear solely mode. A short query and reply session will comply with the formal presentation. If anybody ought to require operator help throughout the convention, please press in your phone keypad. As a reminder, this name is being recorded. It’s now my pleasure to introduce your host, Tony Calderon, Vice President Investor Relations and Company Improvement. Thanks Tony. You might now start.

Tony Calderon — Vice President, Investor Relations and Company Improvement

Thanks Tiffany and good morning everybody. Becoming a member of me are Chris and Ken. Earlier this morning we we issued our fourth quarter earnings launch outlining our outcomes and our 2026 steering together with a presentation out there on our web site. Earlier than we start, please be aware that right this moment’s dialogue will embrace ahead wanting statements topic to dangers, assumptions and uncertainties that would trigger precise outcomes to vary materially. For extra data, please check with our earnings launch and SEC filings. We may even talk about non GAAP monetary measures that are reconciled to GAAP measures within the earnings launch. With that, let me flip it over to Chris.

Christopher Kubasik — Chair & Chief Government Officer

Thanks Tony and good morning everybody. We wrapped up 2025 by persevering with to execute with velocity and self-discipline, assembly our buyer commitments, enhancing on time supply and investing to extend manufacturing capability whereas delivering sturdy fourth quarter and full yr outcomes. We ended the yr with a file order e-book and and powerful demand alerts from our prospects. All of that is positioning us for sustained development going ahead. We’re equally centered on how we evolve our enterprise. Over the previous six years we’ve got aligned our portfolio to the quickest rising protection priorities with a imaginative and prescient of the way forward for warfare.

Because of this, we’ve got acquired and divested billions of {dollars} of companies together with our not too long ago introduced sale of a majority stake in our civil area, propulsion and energy enterprise. 60% of this enterprise is being offered to AE Industrial Companions. AE’s a number of investments in area property make them an efficient steward to scale the enterprise and unlock its worth for our shareholders. This transaction allows us to sharpen our give attention to our priorities for the Division of Warfare and our allies. We now have continued to enhance our operational agility and market place. We reorganized our companies from 4 segments to a few with a view to align know-how and enterprise fashions.

And we introduced our intention to pursue an preliminary public providing of our missile options enterprise within the second half of 2026. The Division of Warfare is the anchor investor making a $4 billion plus income majority owned public firm with sustainable double digit development. This new firm will ship important propulsion methods at unprecedented velocity and scale in addition to different missile options akin to air launched results, IR seekers and weapon launch methods. That is an instance of the strategic partnerships we’ve got pursued to drive enterprise development and deal with important wants for our prospects. We hung out within the Pentagon and listened to the Dow’s must considerably increase missile manufacturing.

And we responded, negotiating a novel partnership construction that advantages the warfighter taxpayer and our shareholders. We, together with our provide chain, will construct manufacturing capability quicker than anybody within the trade. To satisfy the demand sign, the US Authorities is planning to make a monetary funding in a brand new firm important to our nationwide safety. Their stake is solely financial. They need better capability rapidly and a return on their funding. The technique is easy. Development started final yr to increase capability on massive strong rocket motors and sure tactical rocket motor packages. The federal government invests now permitting us to additional improve capability for important interceptor packages akin to THAAD, PAC3 and Normal Missile.

There isn’t any ready for contracts or acquisition funding. The funding provides us the arrogance to construct right this moment whereas the long run contracts are being negotiated and finalized. Capability is now a very powerful functionality. Our actions are deliberate. We’re main the trade to satisfy the wants of our prospects. We’re strengthening the commercial base, reinvigorating competitors following a long time of consolidation and unlocking worth for our shareholders in our trade. The yr unfolded towards some of the demanding protection and safety environments in a long time. It was advanced, aggressive and quickly evolving. Pace and execution mattered. In opposition to that backdrop, our workforce delivered.

So due to them, for our greatest yr ever, we met our commitments to warfare fighters, to prospects who measure worth in deliveries and never intentions, and to the Dow by strengthening the provision chain that underpins nationwide safety. Delivering on our commitments resulted in file orders, strong natural development, increasing margins and powerful money stream technology. Doing what we are saying we’re going to do is key to how we run the corporate. Our portfolio is instantly aligned with the quickest rising buyer missions, area sensing, missile protection, resilient communications, plane, ISR missionization and kinetic results. That alignment is deliberate and informs the place we make investments, how we come to market and the way we have interaction with prospects.

Our mission relevance is seen in our file order e-book and powerful natural development. We executed on our packages, stabilizing difficult area packages, clearing delinquent rocket motor deliveries courting again to the time of our acquisition and realizing efficiencies by means of lhx. Subsequent, these outcomes mirror disciplined execution, technical credibility and our means to ship at velocity and scale in direct alignment with evolving buyer necessities. Undoubtedly, what stood out probably the most in 2025 was the tempo and urgency of buyer demand. Risk environments advanced quicker than latest historical past and expectations shifted simply as rapidly. Clients require superior functionality at velocity and scale.

We now have the aggressive benefit on this surroundings because the agile Trusted Disruptor we additionally deepened our position as a trusted worldwide associate. We received key awards in Europe and Asia, leveraging a worldwide provide base and investing in native trade to scale capability. We now have localized manufacturing throughout the globe enabling us to satisfy buyer wants throughout manufacturing and throughout the lengthy sustainment tail. These efforts reinforce our dedication to strengthening world safety by means of interoperable options and partnerships. We secured awards that mirrored the complete breadth of our capabilities and our means to persistently convey the fitting applied sciences to the desk and translate them into buyer aligned options.

These wins underscore buyer confidence in our technical depth, disciplined execution and our means to ship built-in mission prepared capabilities. All of this resulted in file backlog and order e-book this yr with an total e-book to invoice of 1.3 and and backlog in extra of $38 billion. Let me spotlight a few our key wins this quarter. In the beginning of the fourth quarter we secured a landmark $2.2 billion award from South Korea for subsequent technology airborne early warning missionized enterprise jets. Additionally throughout the quarter we have been awarded a world Climate satellite tv for pc program for about $200 million and a number of worldwide tactical communications and software program outlined radio orders within the quarter totaling over $200 million.

On the finish of 2025, we strengthened our management in area based mostly missile protection with the award of an SDA contract valued at roughly $850 million to ship 18 satellites for the Tranche 3 monitoring layer. Constructing on a confirmed monitor file as the one firm awarded contracts throughout all 4 tranches. This milestone reinforces our alignment with nationwide protection priorities and underscores our means to ship trusted, resilient built-in spacecraft architectures. The continued know-how maturation for this contract in addition to manufacturing synergies positions us very nicely for the HBTSS award and following the quarter we have been chosen to ship multi plane particular mission enterprise jets for a world buyer with a possible worth of over $2 billion.

An preliminary order of over 700 million might be booked within the first quarter of 2026. Our 2026 steering exceeds our formidable targets for income margin and free money stream that we laid out at our final Investor Day in December 2023. Our file backlog and strong order outlook underpins our 2026 trade main 7% natural development. We additionally exceeded our LHC’s subsequent $1 billion financial savings dedication, one yr forward of plan. Many doubted our means to satisfy these targets, however right this moment’s steering exceeds the 2026 monetary framework and on account of our relentless give attention to management, expertise, accountability, tradition, operational excellence and disciplined execution, our 2026 steering that Ken will take you thru momentarily is the inspiration for a brand new 2028 monetary framework that we’ll announce at our upcoming Investor Day in February.

With that, I’ll flip it over to Ken.

Kenneth L. Bedingfield — Senior Vice President and Chief Monetary Officer

Thanks and good morning everybody. Turning to the monetary outcomes for 2025 Income was 21.9 billion, up 5% organically with development in all 4 segments. Adjusted phase working margin was 15.8%, up 40 foundation factors, reflecting continued price efficiencies and powerful program and product supply execution. Non GAAP EPS was $10.73, a rise of 11% over 2024. Adjusted free money stream grew to $2.8 billion, representing a rise of better than 20% pushed by earnings development, efficient working capital administration and the profit related to favorable tax planning methods and tax reform. For the fourth quarter, income was 5.6 billion, up 6% organically with a phase working margin of 15.7%, up 40bps.

Non GAAP EPS was $2.86, up 10% yr over yr. Turning to our segments outcomes for 2025 CS delivered income of 5.7 billion and margins of 25.2%, 4% development and 50bps of margin enlargement. Within the fourth quarter, CS delivered income of 1.5 billion, up 3% pushed by elevated worldwide deliveries for software program outlined resilient communications in addition to subsequent technology jammer program. Ramp. This fall working margin elevated to 24.9%, up 50 foundation factors. CS margin benefited from LHX Subsequent. In 2025, IMS delivered income of 6.6 billion, 8% natural development and margin of 12.2%. Within the fourth quarter, IMS income was 1.7 billion, up 11% organically as a consequence of ramping exercise on categorised ISR packages and our airborne early warning and management plane.

For the Republic of Korea, This fall working margin was 11.1% down 270 foundation factors, with the discount largely reflecting the CAS divestiture and unfavorable program efficiency in maritime. For 2025, SAS delivered income of 6.9 billion and margin of 12.3%. For the fourth quarter, SAS income was 1.7 billion, up barely, primarily pushed by elevated FAA quantity and mission networks, partially offset by decrease categorised program quantity in area and intel and Cyber. The federal government shut down, delayed awards and restricted further income development within the quarter and the yr. This fall working margin elevated to 13.7%, up 290 foundation factors, reflecting stabilized efficiency on categorised area packages and LHX subsequent advantages.

For 2025, Aerojet Rocketdyne delivered 12% natural income development with income in extra of two.8 billion and margin of 12.5% for the fourth quarter. Arkansas delivered one other sturdy quarter with natural development of 12%, marking its third consecutive quarter of double digit development. Efficiency was pushed by greater manufacturing volumes throughout key missile and munitions packages and the continued ramp of latest awards. This fall working margin expanded by 130 foundation factors to 11.8%, benefiting from greater volumes and LHX. Subsequent, nice outcomes by every of the segments. Now I’d like to spotlight key phrases of the Division of Warfare’s deliberate funding.

This can be a $1 billion most well-liked safety invested instantly into the Missile Options enterprise. The safety converts at a 20% low cost to the IPO value plus 3% removable warrants priced at a premium. We’re planning for an IPO within the second half of 2026 and the Dow is anticipated to carry a single digit fairness possession stake. As a reminder, Missile Options will stay a consolidated phase into our financials following the deliberate public providing. This enterprise will proceed to be part of LHX and can make the most of our enterprise companies and help construction. Turning to steering for 2026 we count on income of 23 to 23.5 billion representing natural development of seven% on the midpoint phase working margin is anticipated to be low 16% supported by sturdy program execution investments to drive continued transformation and price construction effectivity.

Free money stream is anticipated to be $3 billion pushed by development, greater profitability and disciplined working capital administration. Whilst we improve our capex to roughly 600 million, we’re transitioning our diluted EPS steering from a non GAAP to a GAAP foundation. Now that we’ve got accomplished the implementation portion of the LHX subsequent program, our GAAP diluted EPS is anticipated to be within the vary of 1130 to $11.50 strong development even from our non GAAP diluted EPS in 2025. Our steering displays acceptable threat posture early within the yr and the dynamics related to administration priorities.

It features a full yr of area propulsion and energy methods enterprise as we proceed to work in the direction of closing the transaction anticipated within the second half of the yr. In step with prior follow, we are going to replace as vital upon the transaction closing on the phase stage. Area and mission methods or SMS, fashioned primarily from IMs and SAS, delivers important multi area protection options in a conventional prime enterprise mannequin. SMS income is anticipated to be roughly 11.5 billion pushed by energy in ISR, plane missionization and area options. Working margin is anticipated to be within the mid 10% vary.

Communications and spectrum dominance or CSD brings our former CS phase along with our West CAM sensor enterprise and different EW packages from throughout the corporate to ship primarily business merchandise at business margins. CSD income is projected at roughly $8 billion pushed by development in EW packages and communication and airborne EOIR sensor merchandise with working margin of about 25%. Missile Options, or MSL combines aerojet with important missile methods together with Air Launched Results, IR Seekers and different superior applied sciences, making a centered excessive development enterprise underpinned by Scaled Capital Funding. MSL income is anticipated to be roughly $4.4 billion with margins within the mid 12% vary, supported by continued development in strong rocket motor manufacturing and for modeling functions.

This may convert to ebitda of roughly $620 million. Our capital deployment technique displays our dedication to investing within the enterprise whereas delivering worth to our shareholders. Our method to dividends is unchanged and the variety of shares excellent is anticipated to be comparatively per yr finish 2025. With that, I’ll flip it again to Chris Thanks Ken.

Christopher Kubasik — Chair & Chief Government Officer

Our outcomes and actions place us for the following part of development. We’re extra agile and we’re in a position to allocate capital dynamically, associate strategically and adapt our portfolio as markets evolve. And we’re strengthening our basis for long run efficiency by reworking our firm, evolving our working system and adopting AI. Most essential, our actions be sure that we stay a trusted associate for our prospects and proceed to disrupt with a give attention to long run worth creation for all stakeholders. Tiffany let’s go to Q and A.

Questions and Solutions:

operator

We are going to now be conducting a query and reply session. At the moment please restrict to at least one query per particular person. When you’d prefer to ask a query, please press Star one in your phone keypad and affirmation tone will point out your line is within the query queue. You might press Star one when you’d prefer to take away your query from the queue. If in case you have an extra query, please press Star one once more to get again within the queue. For members which are utilizing speaker tools, it could be vital to select up your handset earlier than urgent the star keys.

One second please whereas we ballot for questions. Thanks. Our first query right this moment comes from the road of Kristin Lewog with Morgan Stanley. Please proceed together with your query.

Kristine Liwag

Hey good morning everybody. Chris and Ken, thanks for the extra coloration you offered on the missile options enterprise this morning. Contemplating the sturdy demand for this product, ought to we proceed to see long run agreements much like what was introduced on PAC3 and thaad? Or is that this glad by the IPO plans with the US Authorities and in addition a comply with as much as that’s. You’ve known as out double digit development for this enterprise however demand may be very sturdy within the subsequent three to 5 years.

And possibly it’s too untimely to consider it like that, however is that this one thing that would develop 3 to 5x bigger? Thanks.

Christopher Kubasik

All proper, Christine, thanks for the query. Yeah, look, all the pieces is monitoring as we’ve been speaking about. We have been excited to listen to this morning that Lockheed Martin reached an settlement on thad. As you already know, we’re the one supplier of the propulsion and DAC methods for thaad. And clearly we’re going to be glad to help Lockheed Martin and the the tip buyer. So completely. That is what all of trade has been discussing with the Dow over the past half yr or so and we’re beginning to see these transactions take type. Yeah. As soon as we get the a number of billion {dollars} and begin with the facilitation, constructing in extra of 60 factories over one million sq. ft, ordering the tools and our provide chain doing the identical, I believe there’s numerous upside and potential.

As you’ll count on. We’ll file type S1 as a part of the IPO course of later this yr and it’ll present much more data and particulars and spotlight the potential upside.

Kenneth L. Bedingfield

Yeah, I’ll simply add, Christine, as Chris talked about, we’re completely excited in regards to the framework agreements which were signed between the Division of Warfare and Lockheed on each PAC 3 and THAAD. We’re working intently with our buyer in addition to the tip consumer to be sure that we’re, you already know, very intently aligned. Particularly, you already know, these prospects which are working intently with the Division of Warfare on the acceleration and the scaling and getting the settlement signed. We’ve been investing and, you already know, once more working intently to modernize manufacturing traces for THAAD and PAC3. We’ll proceed to do this and we’ll take a few of the classes discovered from that to scale throughout the entire Mac, you already know, munitions acceleration packages.

And you already know, as we take a look at this, I don’t wish to put a quantity on the market on, you already know, tripling, however we do suppose that this enterprise as we mix missile options is one that may develop at a double digit CAGR for some interval to come back. We’ve studied the market, we’ve studied the demand. We’ve had some outdoors events are available in and do an impartial look simply to verify we’re it appropriately. And we do see this enterprise as in a position to develop double digits for the foreseeable future.

operator

Our subsequent query comes from the road of Myles Walton with Wolff Analysis. Please proceed together with your query.

Myles Walton

Nice, thanks. First one was on Capex. It’s clearly greater two and a half p.c. The 26 gross sales or thereabouts. Is there a a lot larger step up taking place sooner or later to present us a smaller step up than it could have anticipated for the multibillion greenback funding required in missile options?

Kenneth L. Bedingfield

Yeah, Miles, I can take that one. We’re stepping up capex in 2026 to about 2.5% of gross sales or you already know, $600 million. I believe that’s, you already know, one thing like 35 or 40% improve from 2025. As we try this, we’re, you already know, nonetheless holding to our 2026 free money stream steering of $3 billion.

And you already know, wanting ahead, I’m not going to place a quantity on 2027 CAPEX at this level, however we’re definitely fascinated with it by way of, you already know, as we capacitize to ship, you already know, how will we be capable to, to tug money on a few of these new manufacturing packages to have the ability to offset a few of that capex that we’re needing to speculate up entrance? We’ll definitely be working with all the provide base to be sure that we’re, you already know, going at this collectively. And suffice it to say, I believe that that is type of a one time capital funding to essentially and really modernize how strong rocket motors are produced at velocity and at scale and at a fee that fairly frankly the purchasers haven’t gotten so far out of the SRM provide base.

And you already know, there may be numerous demand and we’re seeking to assist to fill that as rapidly as doable to get that product into the fingers of the warfare fighter. So we predict there’s a sturdy long run profit to this capital funding. However once more, we’ll definitely be working to maximise money inflows as we take a look at these capex necessities in 27 and 28.

Christopher Kubasik

And I’ll simply add Miles, as you already know, we bought Aerojet Rocketdyne two and a half years in the past and on day one we began investing. So there’s been nicely over a half billion {dollars} of CAPEX spent at Aerojet over the previous two and a half years. So once we made this acquisition we knew it was a race. We began on day one and we certain plan to win the race.

operator

Our subsequent query comes from the road of Noah Popinac with Goldman Sachs. Please proceed together with your query.

Noah Poponak

Hey, good morning all people.

Christopher Kubasik

Good morning.

Kenneth L. Bedingfield

Hey Noah.

Noah Poponak

Thanks Ken. Simply fast level of clarification. The remark you made about your, in regards to the expectation of the federal government or Pentagon stake in missile options is that it could be a single digit proportion of the enterprise worth of missile options. Simply wish to be sure that’s what you meant. After which simply as a second query, to your level on nonetheless doing the three billion with the upper capex, that means your money from OPS is rising yr over yr fairly a bit quicker than your phase ebit. When you may simply break down the items of why that’s taking place.

Kenneth L. Bedingfield

Certain, Yep. On the primary query, sure, I did the truth is imply single digit stake, single digit possession stake within the enterprise. And on the second query, you already know, look by way of, you already know, our money from OPS and our free money stream. We’re definitely, you already know, laser centered on making certain that we ship the money out of the earnings that we generate. And as we take a look at 2026, we’re very comfy that we are able to accommodate the extra CapEx necessities as we glance once more at investing within the enterprise to help our prospects and to drive the wanted capability will increase in our merchandise.

And I ought to say that’s actually throughout the L3Harris portfolio. We focus usually on, on strong rocket motors. However you already know, there are calls for for a variety of our merchandise as Chris talked about in his feedback and you already know, look disciplined working capital administration, you already know, definitely, you already know, work in all elements of the, of the contractual offers with our prospects in addition to our suppliers to be sure that we are able to, you already know, ship the money at 3 billion for 2026.

operator

Our subsequent query comes from the road of John Godin, Citigroup. Please proceed together with your query.

John Godyn

Hey guys, thanks for taking my query. There’s clearly numerous pleasure round missile options however we do get questions on RemainCo and what the income outlook for RemainCo LHX RemainCo may seem like over the following couple years and factors of leverage to what might be a really massive protection price range on the horizon. I’m certain we’re going to get, you already know, extra element on the investor day however, however I’d love to only type of provide you with an opportunity to talk to what the income development fee may seem like, whether or not you envision it accelerating from right here and what factors of leverage stay within the enterprise even if you ipo the form of most enjoyable, quickest rising half. Thanks.

Christopher Kubasik

Hey John, thanks, thanks for the query and I admire the give attention to Remenco as a result of that’s a giant a part of huge a part of L3Harris. And as Ken stated, and we’ve stated over the past a number of weeks, we are going to proceed to consolidate, personal and management MSL even after the ipo. So we’re strong mid single digit development a bit quicker I believe than the remainder of trade and hopefully quicker than the market in whole. As I stated in my ready feedback, I actually like our portfolio. We spent numerous time realigning this over the past 5 or 6 years.

And I might take a look at our capabilities, I take a look at our capability. We’ve talked about constructing new factories for area. You realize, the SDA win is a giant win for us. 4 in a row. Hpts has are available in numerous categorised work. So once I take a look at what we’ve got in area, what we’ve got within the airborne domains, even maritime, possibly not as a major, however supporting numerous the brand new development, I believe we’re nicely positioned. You realize, the accelerant might be, you already know, we have to see the 2027 protection price range. The PBR president’s price range request has but to be submitted to Congress.

I believe someday in March is what persons are saying. And if that’s the truth is $1.5 trillion, I’ll be as excited as all people else within the trade. And it may even be additional upside. 7% is the midpoint of a variety. So I actually like our portfolio. I really like our backlog, and I believe we’re nicely positioned.

Kenneth L. Bedingfield

Yeah, I might simply add John to that. You realize, if we do see a considerably elevated protection price range in FY27, you already know, our expectation definitely is that as we take a look at upside to development, we’d count on L3Harris to have the ability to ship on that faster given, you already know, our, you already know, type of agile nature and our means to crank up manufacturing, given a few of the investments that we’ve made within the enterprise, whether or not that’s in, you already know, area satellites associated to, you already know, missile protection for America, whether or not that’s in, you already know, communications and even as we scale the strong rock motors.

operator

Our subsequent query comes from the road of Peter Arment with Baird. Please proceed together with your query.

Peter Arment

Yeah. Hey, good morning, Chris and Ken. Good outcomes, Chris, concerning, like Golden Dome and sba, you’ve been very profitable. All of the SBA type of packages that you simply highlighted, and one other nice win in December. However how will we take into consideration type of the whole alternative? Or are you able to quantify type of what Golden Dome appears like for L3Harris once we take into consideration that?

Christopher Kubasik

Completely. Golden Dome was arrange as a part of an govt order most likely a few yr in the past right this moment. We’ve been monitoring, as you’ve got, all of the progress underneath normal gutline and setting them up as a derpim, and the price range, 155 billion of reconciliation cash, which comprises 25 billion only for Golden Dome. So if you take a look at the three items, there’s area based mostly interceptors, you already know, which I believe would be the slowest to Develop over time and possibly started with, you already know, growth packages. We’re taking a service provider provider method with area based mostly interceptor. We now have some nice applied sciences that everyone desires.

I believe a part of our technique and portfolio permits us to prime suburb through service provider suppliers. In order that’s how we’re going to play in that. We talked in regards to the precise satellite tv for pc structure. I believe we’re in a extremely good place as evidenced by what we’ve received so far, as you stated, Peter. And we simply want to attend for extra awards and extra RFPs. I believe the federal government shut down, as we stated, most likely set again, you already know, the Area Power 45 days or so. However they did come out with an structure. We now have our capabilities and we’ll be prepared to reply rapidly once more.

We’ve invested, we constructed the amenities and we’ve got cutting-edge fashionable factories to crank out these satellites on the proper time. After which all the pieces else underneath Golden Dome. Loads of this offers with the missile protection and the interceptors, you already know, which I believe, I believe we’ve lined underneath the Thaad PAC3 umbrella. We even have hypersonic capabilities and huge strong rocket motors as nicely. So I imagine we’re in actually good condition relative to every piece and we’ve got the capabilities, we are able to go quick as Ken stated. And we’re simply able to get some awards and reply to some proposal.

operator

Our subsequent query comes from the road of Sheila Kayalu with Jefferies. Please proceed together with your query.

Sheila Kahyaoglu

Good morning, Kris and Ken. I wished to ask one other enterprise query. You talked about worldwide tactical comms in your ready remarks. You realize, how strong has that development been in 25 and expectations over the following few years and the way are you balancing the home facet of tactical? Simply fascinated with the multi yr outlook there.

Christopher Kubasik

Yeah. No, thanks, Sheila. I’m glad you requested the query. We nonetheless suppose we’ve got the very best and solely resilient comm functionality. It’s going to be important to the way forward for warfare on the worldwide. You learn loads about it. We continued to win numerous enterprise in 2025. We expect we’re going to proceed to win some enterprise in 26. We’re in discussions with numerous international locations world wide and you already know, it’s important to steadiness, you already know, all of the political rhetoric with the operational wants. On the finish of the day, these international locations want resilient comms they usually want interoperability.

Our technique has been and is definitely rising with increasingly more localization. We make the most of in nation partnerships, we’re making investments in nation, we’re transferring know-how as acceptable and we can have extra worldwide software program outlined radios in 2026 than we are going to in 2025. In order that’s rising on that entrance domestically, you already know, there’s loads being reviewed primarily by the Military. I do like the truth that they’re working experimentation, they’re doing demos they usually’re going to make the choice based mostly on the aptitude. We proceed to imagine we’ve got the very best capabilities by far. Once more, our radios are software program outlined, so we’ve been investing and upgrading them with new capabilities.

And look, on the finish of the day, the troopers wish to carry one radio. We don’t wish to go backwards the place persons are carrying two or three or 4 radios. So the truth that we’ve got the software program to search out radios is a big benefit for us. We’ve invested previously, we’ve leveraged the business enterprise mannequin we are able to scale, and we’ve got a cutting-edge manufacturing unit in upstate New York. So I’m optimistic in regards to the future.

operator

Our subsequent query comes from the road of Gautam Khanna with TD Cohen. Please proceed together with your query.

Gautam Khanna

Yeah, thanks guys. Simply following up on the final query. As we take into consideration a few of the issues that didn’t get funded as nicely within the 26 request, you already know, issues like armed Overwatch and a few of the US army radios, I’m simply curious, do you anticipate that we’ll begin to see a few of that stuff get funded within the 27 request? Do you’ve got any indication both manner? After which simply as a comply with up, clearly the examine on margins, there have been some asset beneficial properties in 2025. I’m simply curious when you may discuss form of what’s driving the margin enchancment in, in 2026.

Thanks.

Christopher Kubasik

Yeah, thanks. Thanks, Gavin. We don’t even have perception into the 27 price range as you’ll count on, however whether it is the truth is going to be 1.5 trillion, you already know, I acquired to imagine that the wants for like I’ve stated, the area sensing, the resilient comms, kinetic results and such are in our candy spot and these will, will the truth is be funded. Discovering the, the price range because it pertains to these HMS software program radios is on quite a lot of completely different line objects. Once more, you already know, we really feel that, that our {hardware} is, is required, that {our capability} within the community is required and we’re prepared and in a position to compete with any and all newcomers and incumbents to show our capabilities.

So I’m feeling fairly good in regards to the potential there, however we have to see how this, how this performs out over the following a number of months.

Kenneth L. Bedingfield

And to the second a part of the query, Gautam, I might say, you already know, As part of our technique and together with, you already know, LHX subsequent and the way we do issues in another way and most effectively. We’ve definitely been centered on investing within the enterprise the place we see future alternatives and development. And as part of that, the place we see, you already know, some product traces which are, you already know, I’ll say legacy or that we’re not investing in which are much less core to our technique and our development, we’ve centered on making an attempt to monetize a few of these. For folks who might even see these as extra enticing by way of the long run sustainment tails or what aligns higher with their enterprise mannequin.

By way of 2026 margin enchancment, I largely see it falling onto our crew to ship on our packages and our product deliveries. We’re not projecting numerous, you already know, product line gross sales or beneficial properties relative to that in 2026. That is going to be about execution, product supply, program supply and that’s how we plan to get to that elevated margin in 26. I believe we’ve acquired confidence, you already know, we’re projecting to be, I believe, optimistic EACs for 2025 and that places us on a great trajectory for 26. I believe we’ve gotten some program challenges understood and behind us and we’ve stabilized just a few packages that we had been fairly frankly challenged with in components of 24 and into 25.

So really feel good. I believe we acquired the fitting crew and we are able to, you already know, ship on these commitments, you already know, largely by acting on the enterprise, acting on our packages, getting the product delivered and attending to our low 16% margin fee in 2026.

Christopher Kubasik

Now I’ll simply make clear in my feedback. I discuss LHX subsequent ending a yr early. That was a prime down method, as you already know, for 2 years to take out vital over, you already know, billions of {dollars} of price to streamline the enterprise that’s now a part of our DNA. It’s going to be embedded into our operations as a part of our ongoing steady enchancment program. So the ideas and the philosophy of steady enchancment, effectivity, price financial savings will proceed. It simply received’t be known as out as a separate prime down initiative. It is going to be into the each day operations of the enterprise. So one other potential tailwind to greater margins.

operator

Our subsequent query comes from the road of Scott Mikas with Melius Analysis. Please proceed together with your query.

Scott Mikus

Morning, Chris and Ken. Bookings have been very sturdy within the quarter and the yr, however given the shutdown numerous the funding from final yr was delayed and the one huge stunning invoice funding is but to be placed on contract. I’m simply curious the place do you count on e-book two invoice to come back in for the yr and will you possibly parse that out by the brand new segments?

Christopher Kubasik

Yeah, I believe you’re proper on the funding. You realize, I believe proper now we’re ready for, I believe the Division of Warfare has to supply a spend plan for the 155 billion reconciliation again to Congress after which as soon as that happens, the cash might be allotted and begin to stream. We did finish the yr at 1.3. E-book to Invoice. Typically don’t die e-book to invoice. However I might suppose it could be no less than 1.1 or bigger. However once more, we have to get the 26 appropriations handed. We acquired a season 27 PBR, however we be ok with it and we all the time plan to e-book extra orders and income. We’re going to develop 7% midpoint. We’re going to develop orders double digits.

operator

Our subsequent query comes from the road of seth Seifman with JPMorgan. Please proceed together with your query.

Seth Seifman

Hey, thanks very a lot and morning everybody. Perhaps simply fast query and a clarification I assume from the query. The CSD enterprise and type of, you already know, wholesome margin there, 25%. How do you consider the sustainability of that margin going ahead? Is {that a} phase the place, you already know, given the mannequin, there’s potential for margin enlargement or is it at a spot the place, you already know, that that’s about as wholesome as issues can get or, you already know, are there numerous, you already know, pressures on the market from combine or anything?

Christopher Kubasik

All proper, and the clarification, the clarification.

Seth Seifman

We talked earlier in regards to the, you already know, decrease funding within the, within the request for tactical radios. Do you the truth is have a great sense of how all the pieces’s, all the pieces shook out in appropriations for tactical.

Christopher Kubasik

Okay, yeah, let me take these. Yeah. On csd, the great factor now’s we’ve got a majority of our business companies in the identical phase. And I believe that’s what distinctive about L3Harris and I believe Ken stated it nicely, we’ve got the normal prime enterprise fashions, we’ve got the business enterprise fashions after which after all we’ve got the excessive development prime line msl. So yeah, we’re always seeking to enhance our margins. And I believe with the business enterprise mannequin, with the amount and the effectivity, even the upcoming adoption and utilization of AI, there’s all the time potential to extend on these specific alternatives.

So I’m actually optimistic about it. And there might be finest practices shared throughout the business enterprise mannequin phase that has solely been fashioned about 4 weeks in the past. So there’s completely upside in that regard. And sure, testing on the 2026, like I stated, there was some Reductions in a few of the tactical radio line objects, they’re type of peanut buttered all through. So it’s important to piece them collectively. Some are aggressive, which we plan to win. And you already know, we’re nonetheless optimistic that we are able to develop our, our tactical radio enterprise in 2026. And that’s our plan.

Kenneth L. Bedingfield

Yeah, I’ll simply add possibly only a couple issues, Seth, by way of CSD and the 25% margin fee that we’re forecasting for 26, you already know, I believe we definitely, you already know, be ok with that by way of, look, it’s a business mannequin. We make investments, we convey the product ahead and we are going to proceed to put money into that enterprise to proceed to modernize our merchandise and be sure that they meet the ever altering calls for of the warfighter. And as we make these business sort investments, they definitely are or they do offset a few of that margin. As you consider that mannequin, we definitely accommodate that throughout the 25%.

Is there the chance to see a few of that go up, as Chris talked about, as we proceed to modernize and proceed to consider how we function the enterprise? Certain. However we’ll additionally take into consideration that as giving us the flexibility to proceed put money into the expansion of that enterprise. And I believe that ties right into a bit into your query on the radios. We definitely proceed to put money into fashionable waveforms, definitely into the software program outlined radios themselves, and positively into {our relationships} with companions across the globe which are in a position to, you already know, procure us radios from L3Harris which are once more, resilient, interoperable and in a position to allow us to have regular throughput within the manufacturing unit, at the same time as we take into consideration on the home facet, reallocating a few of our assets to help packages like NGC2, you already know, from HMS ManPAC and COTS, after which filling within the manufacturing for our worldwide companions who actually wish to get their fingers on once more, these interoperable L3Harris radios. So it’s been a great mannequin for us.

operator

Our subsequent query comes from the road of Doug Harnd with Bernstein. Please proceed together with your query.

Doug Harned

Good morning. Thanks. On area, I wished to know a bit bit extra about what your manufacturing plans are, the ramps in Palm Bay and Fort Wayne and, after which how you consider it within the context of your broader area enterprise. You talked about, as we all know, you’ve been on each one of many tranches for the monitoring layer, however if you take a look at Tranche three, there are three of your friends additionally on there. So I’m making an attempt to know the way you see the monitoring layer evolving over time from a aggressive and industrial participation standpoint and the way that ties in with Your fascinated with manufacturing ramps in your new amenities.

Christopher Kubasik

Okay. Good morning, Doug. Thanks for the query. Yeah, there have been 72 monitoring satellites awarded. I believe in our conferences with the purchasers over the past yr or so. The primary focus is velocity, you already know, adopted intently by scale. So we’ve made the investments over 200,000 sq. ft, as you stated, in Fort Wayne, Indiana and Palm Bay, we’ve got the capability to rapidly flip these satellites and meet the schedules and commitments that we’ve made to the provision chain. You realize, is all the time important within the satellite tv for pc manufacturing enterprise. I believe with all this ramp that’s appears to be the problem that all the trade is dealing with and getting these second and third tier suppliers the size and the flexibility to carry out and meet their commitments.

So we envision elevated income in each of these factories as we begin to fill them up. Trying ahead to getting HPTSs for nonetheless many satellites that seems to be. And there’s numerous work occurring Dug within the categorised enviornment. So golden dome is beginning to fill in. And like I stated, we’ve made the investments, we’ve got the capability and I believe these Dow goes to search for corporations which have the capability. They don’t have time to attend for folks to construct buildings and go from one or two demos to 18 or 36 a yr. So I believe the methods labored. And once more being a bit additional forward a number of years again, we’re completely positioned for this development.

operator

Our subsequent query comes from the road of Robert Stallard with Vertical Analysis. Please proceed together with your query.

Robert Stallard

Thanks a lot. Good morning. Morning. Rob, Chris and Ken. You’ve laid out some fairly fascinating development alternatives forward. However I suppose all of that is dependent in your provide chain and your personnel. So how do you’re feeling in regards to the capability of the suppliers and your inner staffing to take care of this trajectory that’s forward of us?

Christopher Kubasik

All proper, I’ll take it for a shot. Good to listen to you. Personnel has not been a difficulty. I believe we’re one of many hottest corporations within the protection trade for folks to, to work for. We now have a really energetic recruiting each on campus and skilled hires. So no, no difficulty filling the the workforce. We’re spending numerous time with nearly half our staff being engineered engineers. You realize, how will we allow the engineers AI enabled to be extra environment friendly, to get extra, extra productiveness with out not with out essentially having so as to add a major quantity of individuals.

We’re utilizing increasingly more robotics in our factories, together with within the missile phase as nicely. On the provision chain. I believe they’ve now seen the demand alerts the place traditionally there have been sole suppliers to all the trade, I believe we’re seeing two and three completely different suppliers on the market. There’s a ton of personal fairness cash in search of issues to do. And each time we meet with them, we inform them, begin a second third tier provider for the protection trade. The world wants much more there. So I believe it’s more healthy than it was once. It acquired by means of Covid.

They’re investing now that they see the demand sign. And I believe as a rustic the place we’re near having the ability to hit on all, all cylinders, however as all the time, they’ve to have the ability to rent, they’ve to have the ability to make investments and carry out. And I believe this administration is doing a great job setting us all up for achievement.

Kenneth L. Bedingfield

Thanks, Chris. And possibly I’ll simply remark a bit bit additional on provide chain at msl, simply given the fast development that we’re projecting there. And I’ll simply say we’ve considerably matured our method to provide chain, our provide chain group and the relationships with our suppliers the place we actually are fascinated with our suppliers as companions on this path that we see of development and getting the extra capability to our prospects and fewer a few vendor or a transactional sort relationship. So we’re working very intently with the entire key suppliers, I might say in that specific enterprise.

We’re definitely, you already know, one among their, if not their largest prospects, definitely for a majority of these merchandise. We definitely intend to maintain it that manner with the expansion that we undertaking. And you already know, as Chris talked about, in serving to our buyer get the missiles they want into the fingers of the warfare fighter and for us, strong rocket motors into the fingers of our prospects, you already know, we’re primarily in a race each to get these within the fingers of the shopper in addition to keep forward of the competitors. And we do intend to win that race and dealing very intently with our provide chain as a key a part of that technique.

Tony Calderon

Tiffany, we are going to now take the final query.

operator

Our closing query comes from the road of Michael Tramoli with Truist Securities. Please proceed together with your query.

Michael Ciarmoli

Hey, morning guys. Good outcomes. Thanks for taking the query. Thanks, Chris. Simply, it’s simply Chris or Ken a bit bit extra element on possibly unwinding Aerojet and msl. Now you’ll have the bulk stake. Prior to now you’ve talked about, you already know, having all of the capabilities or nearly all of capabilities underneath one roof to compete as a major. Is that this nonetheless going to be the case or is MSL going to be a 100% service provider provider mannequin? And, you already know, if that’s the case, have been there any stipulations or circumstances type of mandated by The Dow to that finish.

Christopher Kubasik

Thanks, Mike. There have been no stipulations from Dow with reference to that query. They need competitors, they need scale, they need velocity and that’s what we plan to give attention to. Yeah, it’s fascinating, I believe this, if you take a look at this 4 billion plus entity, you already know, numerous the main target is on strong rocket motors. However we did discuss Seekers. We’ve been investing lots of of million {dollars} in growing Seekers. We now have weapon launch, so it’s type of a one cease store relative to missiles. However actually as a provider, there typically are loads fewer new begin missile packages as a major.

But when that’s one thing we select to do strategically, we’ve got the flexibility to do it. My sincere evaluation is we’ve got a lot work, a lot development, you already know, we attempt to give attention to what we do nicely and the way we are able to develop the highest line, the underside line and generate money and we’re not going to spend so much of time getting distracted or chasing shiny objects. So we’ve got greater than sufficient work. I’m excited in regards to the 60 plus buildings, the tools, the robotics, the rise within the workforce. However we’ll see what they want and if we are able to, we are able to help the shopper.

We all the time look to see and what position is finest. Typically it’s service provider suppliers, generally it’s a major, generally it’s a sub. However nothing on the market within the close to time period to give attention to in that regard. So I admire the final query. In closing, 2025 was our greatest yr ever. We strengthened the sturdiness and alignment of our portfolio, the energy of our execution and the self-discipline of our technique. We took deliberate actions initially of this yr to evolve and place ourselves for the long run. As we construct on the momentum from 2025, we enter the following part because the trade’s most centered on agile and resilient firm.

Assured in our means to drive sustainable development, ship sturdy outcomes and to proceed to create long run worth for our prospects, shareholders and staff. I wish to thanks all for becoming a member of right this moment’s name. We look ahead to seeing you on February twenty fifth at our 2026 Investor Day in New York Metropolis. Until then, keep secure and heat. Thank. You.

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