L3Harris Reports Strong Third Quarter 2019 Results with Double-Digit Revenue Growth, Margin Expansion Across all Segments and Robust Cash Flow

• 3Q19 revenue $4.4 billion; up 187% GAAP, up 10% versus prior-year combined¹; funded book-to-bill 1.13 and funded backlog up 10% to $16.5 billion
• 3Q19 GAAP EPS from continuing operations up 7% to $1.90; non-GAAP² up 26% versus prior-year combined to $2.58
• 3Q19 operating cash flow of $81 million; adjusted free cash flow³ of $618 million
• YTD19 revenue $8.0 billion, up 68% GAAP; combined revenue $13.2 billion, up 10% versus prior-year combined
• YTD19 GAAP EPS from continuing operations up 19% to $6.13; combined non-GAAP² up 27% versus prior-year combined to $7.23
• YTD19 combined operating cash flow of $797 million; adjusted free cash flow³ up 73% to $1.6 billion
• Increased EPS guidance and tightened free cash flow to the higher end of the range

MELBOURNE, Fla.–(BUSINESS WIRE)–L3Harris Technologies, Inc. (NYSE:LHX) reported third quarter 2019 revenue of $4.4 billion, up 10% compared with prior-year combined revenue. GAAP earnings per diluted share (EPS) from continuing operations increased 7% to $1.90, and non-GAAP EPS² increased 26% versus prior-year combined EPS to $2.58. Net income increased 104% to $435 million, and adjusted earnings before interest and taxes (EBIT)² increased 25% versus prior-year combined to $766 million with margin expansion of 210 basis points (bps) to 17.4%.

“L3Harris is off to a great start as a new company and delivered strong third quarter results with double-digit revenue growth and strong margin expansion, including the benefit of integration, and returned more than $900 million to shareholders in dividends and share repurchases,” said William M. Brown, Chairman and Chief Executive Officer. “These results, together with strong first half combined performance, successful execution against our strategic priorities and solid backlog, give us confidence to raise EPS guidance for the year.”

Summary Financial Results

	($ millions, except per share data)		Third Quarter											Year-to-Date
			CY 2019				CY 2018				Change			CY 2019				CY 2018				Change
	(GAAP comparison)
	Revenue		$	4,431			$	1,542			187	%		$	8,024			$	4,765			68	%
	Net income		$	435			$	213			104	%		$	946			$	622			52	%
	Net income margin		9.8		%		13.8		%		(400)bps			11.8		%		13.1		%		(130)bps
	Earnings per share		$	1.90			$	1.78			7	%		$	6.13			$	5.13			19	%
	(Combined/non-GAAP comparison)4
	Revenue		$	4,408			$	4,010			10	%		$	13,242			$	12,022			10	%
	Adjusted EBIT		$	766			$	612			25	%		$	2,160			$	1,802			20	%
	Adjusted EBIT margin		17.4		%		15.3		%		210bps			16.3		%		15.0		%		130bps
	Earnings per share		$	2.58			$	2.04			26	%		$	7.23			$	5.70			27	%

Revenue increased 10% for the quarter and year-to-date versus prior-year combined revenue, with double-digit growth across Integrated Mission Systems, Space and Airborne Systems and Communication Systems. GAAP EPS increased 7% for the quarter and 19% year-to-date driven by higher volume from the L3Harris merger, strong operational performance, integration savings and the gain on the sale of the Harris Night Vision business, partially offset by integration costs and a step-up in deal-related amortization. Non-GAAP EPS⁴ grew 26% for the quarter and 27% combined year-to-date versus prior-year combined EPS from higher volume, strong operational performance and synergy savings, partially offset by higher investments and, for the third quarter, a higher tax rate. Year-to-date combined adjusted EBIT⁴ margin expanded 130 bps to 16.3% and funded book-to-bill was 1.09.

Segment Results⁵

Integrated Mission Systems

	($ millions)		Third Quarter											Year-to-Date
			CY 2019				CY 2018				Change			CY 2019				CY 2018				Change
	Revenue		$	1,303			$	1,186			10	%		$	3,916			$	3,520			11	%
	Operating income		$	180			$	145			24	%		$	497			$	416			19	%
	Operating margin		13.8		%		12.2		%		160bps			12.7		%		11.8		%		90bps

Third quarter revenue increased 10% from strength in ISR missionization on the Compass Call Cross Deck program and special mission aircraft for the U.S. Government and from increased demand for Wescam turret systems. Operating income grew 24% to $180 million, and margin expanded 160 bps to 13.8%, driven by volume, integration savings, pension income and operational excellence, partially offset by program mix.

L3Harris strengthened its position as partner of choice for ISR aircraft missionization with the U.S. Air Force and received a $209 million contract to convert three aerial refueling tankers into specialized reconnaissance aircraft. In addition, the company received $162 million in funding for legacy aircraft, enhancing its incumbent position across the Javaman, Rivet Joint and Compass Call platforms, which enable intelligence collection, analysis and dissemination capabilities.

Key Maritime awards included $43 million for unmanned surface and underwater vessels as the company leveraged investments in innovation to grow its unmanned maritime franchise and $35 million from the U.S. Coast Guard for C4ISR solutions on the Sentinel-Class Cutter.

Domestic and international demand for L3Harris electro-optical systems remained strong. After successful first article testing, the company was awarded the first low rate production order from the U.S. Army for electro-optical sensor suites supporting the Shadow UAV program, under the previously announced $454 million, multi-year IDIQ contract. Additionally, the company reinforced its incumbency with international customers, receiving over $100 million in electro-optical orders from several NATO allies.

Year-to-date segment revenue increased 11% with a funded book-to-bill of 1.11 and operating margin expanded 90 bps to 12.7%.

Space and Airborne Systems

	($ millions)		Third Quarter											Year-to-Date
			CY 2019				CY 2018				Change			CY 2019				CY 2018				Change
	Revenue		$	1,162			$	971			20	%		$	3,463			$	2,947			18	%
	Operating income		$	226			$	164			38	%		$	644			$	512			26	%
	Operating margin		19.4		%		16.9		%		250bps			18.6		%		17.4		%		120bps

Third quarter revenue increased 20% with double-digit growth in all four businesses: Electronic Warfare (EW), Avionics, Space, and Intel and Cyber. Operating income increased 38% to $226 million, and margin expanded 250 bps to 19.4%, from higher volume and integration savings, partially offset by higher investments.

Order momentum continued in Electronic Warfare and Avionics on long-term platforms – F-35, F/A-18 and F-16. The company leveraged legacy Harris EW capabilities and legacy L3’s proven signal receiver capabilities into a combined solution and was down selected for the initial phase of the U.S. Air Force F-16 electronic warfare modernization program supporting a fleet-wide, 15-year upgrade cycle, a potential revenue synergy. The company also received a $33 million order to upgrade electronic countermeasure capabilities on U.S. Navy F/A-18 aircraft and $191 million for avionics components supporting the F-35 platform.

Investments in innovation continued to drive additional funding and strategic wins in the Space business with a multi-million dollar award for L3Harris’ newly designed next-generation space antenna, building on the company’s 40-plus-year unfurlable antenna reflector legacy. In addition, the company received $76 million in funding support for the ground-based adjacencies franchise to provide end-to-end mission solutions for new and existing classified customers.

Year-to-date segment revenue increased 18% with a funded book-to-bill of 1.10. Operating income increased 26% and operating margin expanded 120 bps to 18.6%.

Communication Systems

	($ millions)		Third Quarter											Year-to-Date
			CY 2019				CY 2018				Change			CY 2019				CY 2018				Change
	Revenue		$	1,032			$	933			11	%		$	3,158			$	2,837			11	%
	Operating income		$	234			$	199			18	%		$	693			$	593			17	%
	Operating margin		22.7		%		21.3		%		140bps			21.9		%		20.9		%		100bps

Third quarter revenue increased 11% driven by strong growth in Tactical Communications, Integrated Vision Systems and Public Safety. Tactical Communications revenue grew 19% with DoD Tactical up 33% from a ramp in U.S. DoD modernization programs and International Tactical up 9% from increased demand in Europe. Operating income increased 18% to $234 million, and margin expanded 140 bps to 22.7%, from higher volume and strong operational performance, partially offset by mix.

DoD Tactical radio modernization momentum continued in the third quarter, with $83 million in orders from the U.S. Army and Marine Corps for next-generation HF manpacks, currently the only HF manpack meeting new NSA crypto-modernization standards. International Tactical received several key orders to support security force modernization, counter-terrorism and border control, including $71 million from a country in Eastern Europe for resilient command and control radios.

In addition, the company strengthened its position in integrated networked systems with the award of a $177 million production contract from the UAE Armed Forces for the Emirates Land Tactical Systems (ELTS) Full Operational Capability program. This contract follows the company’s successful completion of the Initial Operational Capability program and an ongoing technical support and training contract, bringing the inception-to-date value to $437 million against a $1 billion-plus opportunity.

Key awards in the Broadband business included a $92 million award for ROVER® 6 transceivers for the U.S. Army Gray Eagle Aircraft, extending the company’s position on unmanned platforms. In addition, the company received a $43 million order for advanced datalinks for the U.S. Army’s Apache Manned/Unmanned Teaming Expanded Range program, increasing the total awarded value to $190 million.

Integrated Vision Systems received an additional $154 million in funding for phase one of the Enhanced Night Vision Goggle-Binocular program, a key milestone in a multi-year, $1.2 billion recapitalization opportunity.

Public Safety expanded its customer base with a $76 million award from Duke Energy to provide a multi-state, critical communications solution for one of the largest electric utilities in the U.S., supporting more than 12,000 users.

Year-to-date segment revenue increased 11% with a funded book-to-bill of 1.09. Tactical Communications revenue grew 17% and funded backlog increased by 17% to $1.1 billion. Segment operating margin expanded 100 bps to 21.9%.

Aviation Systems

	($ millions)		Third Quarter											Year-to-Date
			CY 2019				CY 2018				Change			CY 2019				CY 2018					Change
	Revenue		$	948			$	953			—	%		$	2,827			$	2,818				—	%
	Operating income		$	127			$	96			32	%		$	324			$	276				17	%
	Operating margin		13.4		%		10.1		%		330bps			11.5		%		9.8			%		170bps

Third quarter revenue was flat as a ramp in fuzing, ordinance and guidance systems in Defense Aviation Products was offset by a decline in Commercial Training Solutions and the competitive loss of the USAF C-17 contract. Operating income increased 32% to $127 million, and margin expanded 330 bps to 13.4%, driven by improved performance, including for Electron Devices, and integration savings, partially offset by mix.

L3Harris received $116 million in awards for combat propulsion systems supporting the U.S. Army’s ground vehicle recapitalization strategy. Additionally, the company was awarded an initial task order against a $99 million IDIQ as part of the Army’s Future Tactical UAS program.

The company continued its solid position in military training and commercial aviation systems with a $74 million award for Army flight training and $50 million in awards from the Transportation Security Administration for security and detection systems.

Year-to-date segment revenue was flat with a funded book-to-bill of 1.05. Operating income increased 17% and operating margin expanded 170 bps to 11.5%.

Cash and Capital Deployment

	($ millions)		Third Quarter												Year-to-Date
			CY 2019				CY 2018				Change				CY 2019				CY 2018				Change
	Operating cash flow		$	81			$	117			$	(36	)		$	797			$	495			$	302
	Adjusted free cash flow6		$	618			$	277			$	341			$	1,629			$	942			$	687

In the first three quarters of calendar 2019, the company generated $1.6 billion in combined adjusted free cash flow⁶, up 73% versus prior-year combined adjusted free cash flow, and, in the quarter, returned $922 million to shareholders through $750 million in share repurchases and $172 million in dividends.

Guidance

As a result of strong year-to-date performance, L3Harris updated its guidance to the following:

Second half calendar year 2019 guidance:

• Revenue of approximately $9.2 billion, up ~10% from combined second half calendar 2018 (tightened from previous range of $9.2 – $9.3 billion, up 9.5% – 10.5%)
• GAAP EPS of approximately $3.81 and non-GAAP EPS⁷ of approximately $5.35 (increased from previous range of $2.31 – $2.41 GAAP and $4.95 – $5.05 non-GAAP)
• Operating cash flow of approximately $834 million; adjusted free cash flow⁸ of approximately $1.35 billion (tightened from previous guidance of $1.07 – $1.12 billion operating cash flow and $1.30 – $1.35 billion adjusted free cash flow)

Full calendar year 2019 guidance:

• Revenue of approximately $18.1 billion, up ~10% from combined full year calendar 2018 (tightened from previous range of $18.0 – $18.1 billion, up 9.5% – 10.5%)
• GAAP EPS of approximately $8.03 and non-GAAP EPS⁷ of approximately $10.00 (increased from previous range of $6.35 – $6.45 GAAP and $9.60 – $9.70 non-GAAP)
• Operating cash flow of approximately $1.95 billion; adjusted free cash flow⁸ of approximately $2.35 billion (tightened from previous guidance of $2.24 – $2.29 billion operating cash flow and $2.30 – $2.35 billion adjusted free cash flow)

Conference Call and Webcast

L3Harris will host a conference call today, October 30, at 8:30 a.m. Eastern Time (ET) to discuss its calendar 2019 third quarter financial results. The dial-in numbers for the teleconference are (U.S.) (877) 407-6184 and (International) (201) 389-0877, and participants will be directed to an operator. Please allow at least 10 minutes before the scheduled start time to connect to the teleconference. Participants are encouraged to listen via live webcast and view management’s supporting slide presentation at https://www.l3harris.com/investors. A recording of the call will be available on the L3Harris website beginning at approximately 12 p.m. ET on October 30.

About L3Harris Technologies

L3Harris Technologies is an agile global aerospace and defense technology innovator, delivering end-to-end solutions that meet customers’ mission-critical needs. The company provides advanced defense and commercial technologies across air, land, sea, space and cyber domains. L3Harris has approximately $17 billion in annual revenue and 50,000 employees, with customers in 130 countries. L3Harris.com.

Non-GAAP Financial Measures

This press release contains non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission (“SEC”), including earnings per diluted share from continuing operations for the third quarter and first three quarters of calendar 2019 and expected earnings per diluted share from continuing operations for the second half and full calendar 2019, in each case excluding L3Harris deal and integration costs, deal-related amortization expense and gain on sale of Harris’ Night Vision business; earnings per diluted share from continuing operations for the third quarter and first three quarters of calendar 2018, in each case excluding the impact of non-cash adjustments related to tax reform and charges related to a decision to transition and exit a commercial line of business and other items, and in the case of the first three quarters of calendar 2018, also excluding a one-time non-cash charge from an adjustment for deferred compensation; adjusted earnings before interest and taxes (“EBIT”) and adjusted EBIT margin for the third quarter and first three quarters of calendar 2019, in each case excluding net interest expense, income taxes, discontinued operations net of income taxes and L3Harris deal and integration costs; adjusted EBIT and adjusted EBIT margin for the third quarter and first three quarters of calendar 2018, in each case excluding, as applicable, net interest expense, income taxes, discontinued operations net of income taxes, charges related to a decision to transition and exit a commercial line of business and other items and a one-time non-cash charge from an adjustment for deferred compensation; free cash flow for the third quarter and first three quarters of calendar 2019 and third quarter and first three quarters of calendar 2018, in each case excluding cash flow for capital expenditures; adjusted free cash flow for the third quarter and first three quarters of calendar 2019 and expected adjusted free cash flow for the second half and full calendar 2019, in each case excluding cash flow for capital expenditures and L3Harris deal and integration costs and adjusted for the voluntary contribution to qualified pension plans in the third quarter of calendar 2019; and adjusted free cash flow for the third quarter and first three quarters of calendar 2018, in each case excluding cash flow for capital expenditures and adjusted to add back the voluntary contribution to qualified pension plans in the first quarter of calendar 2018. A “non-GAAP financial measure” is generally defined as a numerical measure of a company’s historical or future performance that excludes or includes amounts, or is subject to adjustments, so as to be different from the most directly comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”). L3Harris management believes that these non-GAAP financial measures, when considered together with the GAAP financial measures, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionately positive or negative impact on results in any particular period. L3Harris management also believes that these non-GAAP financial measures enhance the ability of investors to analyze L3Harris business trends and to understand L3Harris performance. In addition, L3Harris may utilize non-GAAP financial measures as guides in forecasting, budgeting and long-term planning processes and to measure operating performance for some management compensation purposes. Non-GAAP financial measures should be considered in addition to, and not as a substitute for, or superior to, financial measures presented in accordance with GAAP.

Basis of Preparation of Unaudited Combined L3 and Harris Historical Financial Information

As supplemental information to aid with year-over-year comparability following the L3Harris merger, L3Harris has included certain unaudited combined L3 and Harris historical financial information, which combines L3 and Harris historical operating results as if the businesses had been operated together during prior periods on the basis of the combined company’s four segment structure effective following the merger, but excluding the operating results of Harris’ Night Vision business and L3’s divested businesses, allocating Harris’ corporate department expense to the new segment structure and excluding Harris historical deal amortization (primarily related to Exelis) (the “Supplemental Unaudited Combined Financial Information”). L3Harris current-period adjusted results exclude, and L3Harris intends to continue to exclude in future-period adjusted results, all deal amortization (including L3 historical deal amortization). The Supplemental Unaudited Combined Financial Information has no impact on L3’s or Harris’ previously reported consolidated balance sheets or statements of income, comprehensive income, cash flows or equity.

For avoidance of doubt, the Supplemental Unaudited Combined Financial Information also is not intended to be, and is not, prepared consistent with the unaudited pro forma condensed combined financial information in Exhibit 99.7 to L3Harris’ Current Report on Form 8-K filed July 1, 2019 with the U.S. Securities and Exchange Commission (the “Pro Forma 8-K Filing”), which provides the pro forma financial information required by Item 9.01(b) of Form 8-K, or other pro forma financial information prepared in accordance with Article 11 of Regulation S-X that may be included in L3Harris periodic reports filed with the SEC (collectively with the pro forma information in Exhibit 99.7 to the Pro Forma 8-K Filing, the “Pro Forma Financial Information”). For instance, the Supplemental Unaudited Combined Financial Information does not give effect to the L3Harris merger under the acquisition method of accounting in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standard Codification Topic 805, Business Combinations (“ASC Topic 805”), with Harris treated as the legal and accounting acquirer, and was not prepared to reflect the merger as if it occurred on the first day of any of the fiscal periods presented. The Supplemental Unaudited Combined Financial Information has not been adjusted to give effect to pro forma events that are (1) directly attributable to the merger, (2) factually supportable, or (3) expected to have a continuing impact on the combined results of L3 and Harris. More specifically, other than excluding the operating results of Harris’ Night Vision business and L3’s divested businesses, allocating Harris’ corporate department expense to the combined company’s four segment structure and excluding Harris historical deal amortization (primarily related to Exelis), the Supplemental Unaudited Combined Financial Information does not reflect the types of pro forma adjustments in the Pro Forma Financial Information. Consequently, the Supplemental Unaudited Combined Financial Information is intentionally different from, but does not supersede, the Pro Forma Financial Information.

In addition, the Supplemental Unaudited Combined Financial Information does not purport to indicate the results that actually would have been obtained had the L3 and Harris businesses been operated together on the basis of the combined company’s four segment structure during the periods presented, or which may be realized in the future.

Amounts Adjusted for Certain Items – The Supplemental Unaudited Combined Financial Information includes amounts adjusted for certain items, including revenue, net income, net income margin, income from continuing operations per diluted common share and cash flow, in each case as adjusted to exclude merger-related deal and integration costs and certain other items previously reported by L3 or Harris, as applicable, for the prior periods as set forth in Tables 5 to 8 and the related notes. Such amounts should be viewed in addition to, and not in lieu of, revenue, net income, net income margin, income from continuing operations per diluted common share and cash flow and other financial measures on an unadjusted basis. Tables 5 to 8 and the related notes provide a reconciliation of adjusted amounts with the most directly comparable unadjusted amount. L3Harris management believes that these adjusted amounts, when considered together with the unadjusted amounts, provide information that is useful to investors in understanding period-over-period operating results separate and apart from items that may, or could, have a disproportionate positive or negative impact on results in any particular period.

Contacts

Investor Relations Contact:
Anurag Maheshwari, 321-727-9383

[email protected]

Media Relations Contact:
Jim Burke, 321-727-9131

[email protected]

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