L3Harris Technologies Q4 2024 Earnings Call Transcript

AlphaStreet
Provided by AlphaStreet
January 30, 2025
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Operator

Good morning, ladies and gentlemen, and welcome to the 4th-Quarter 2024 L3 Harris Technologies Earnings Call.

At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call, you need assistance, please press star zero for the operator. This call is being recorded on Thursday, January 30, 2025.

I would now like to turn the conference over to Dan. Please go-ahead.

Daniel Gittsovich
Investor Relations at L3Harris Technologies

Thank you, Joanna. Good morning and welcome. Joining me this morning are Chris and Ken. Earlier today, we published our 4th-quarter earnings release detailing our financial results and 2025 guidance. We've also provided a supplemental earnings presentation on our website.

Today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks, assumptions and uncertainties that could cause actual results to differ materially. For more information, please reference our earnings release and SEC filings.

We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release.

With that, I'll turn it over to Chris.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Okay. Good morning, everyone, and thank you, Dan. We delivered on our commitments for 2024 by executing our trusted disruptor strategy and making progress towards our 2026 framework. We ended the year with record backlog that positions us well for the future.

2024 was a pivotal year for L3 Harris as we marked the five-year anniversary of the transformative merger between L3 and Harris. The combination formed a new company that now operates differently. We're agile, nimble and fast while delivering solutions that are trusted by our customers across all domains. We span the gap between the traditional primes and the new entrants, forming partnerships around critical capabilities such as AI and autonomy, allowing us to rapidly meet the evolving needs of national security and modern warfare.

Domestically, national and homeland defense remains a key priority for the new administration with strong support for our programs in areas such as space, missiles, advanced electronic systems, cyber and resilient comms. Internationally, we saw strong demand for our software-defined radios, night vision goggles and munitions, reflecting our commitment to supporting allies around the world.

Partnerships remain a cornerstone of our trusted disruptor strategy. In 2024, we advanced collaboration with Palantir and venture capital-backed startups focusing on AI-enabled solutions and emerging technologies. These partnerships are accelerating a culture of innovation and speed, enhancing our ability to meet customers' needs faster and more effectively.

Let me highlight some of our key accomplishments this year. We won the next-gen jammer competition, which establishes us as a long-term jamming franchise worth billions of dollars in-production of airborne pods to support the F-18 fleet. Our wins on the glide phase interceptor and next-generation interceptor programs will drive growth in our solid rocket motor business for decades to come. Along with the propulsion content on the previously won Sentinel and Zeus programs, we are solidifying our position as a global leader in large solid rocket motor design and manufacturing capability.

We won a $1 billion IDIQ award for the US Navy to provide resilient communications technology to US and allied forces. Over the next five years, our broadband communications business will deliver software-defined Link 16 terminals that are critical to enabling secure and resilient collaboration across air, ground, maritime and space platforms. By integrating Link 16 into space-based assets, we are expanding its reach in utility, ensuring US and Allied forces have seamless connectivity and situational awareness across all domains.

As a testament to our trusted disruptive strategy at-work, a team led by L3 Harris, partnering with venture-backed startups was selected by the Defense Innovation Unit to prototype a command and control system capable of operating hundreds or even thousands of swarming autonomous assets. This project advances the DoD's replicator and replicator initiative by integrating advanced commercial technologies to enable collaborative autonomy in all domains. Our open system architecture supports rapid integration of third-party algorithms, providing unmatched scalability and flexibility to meet mission demands. By combining these capabilities with our expertise, we are shaping the future of warfare, ensuring US and allied forces maintain a competitive edge in contested environments.

As you saw in the press last week, I recently took steps to strategically align our leadership team to drive sustained profitable growth. Ken has been appointed President of Aerojet Rocketdyne effective Munde in addition to his responsibilities as CFO. With his extensive defense sector experience, Ken will drive operational excellence and continue our strong performance. Sam role has been expanded to lead enterprise strategic collaboration agreements to further elevate our focus on partnerships while continuing to head the Communication Systems segment.

We've also elevated the LHX Next organization, which has been led by Heidi Wood for the last year and achieved excellent results. She will report directly to me as we continue to drive cost-savings while accelerating enterprise-wide transformation. Lastly, I want to thank Ross for his contributions to L3 Harris; first as CTO and then as President of Aerojet Rocketyne. His leadership has been instrumental in positioning Aerojet Rocketyne for long-term success. After a distinguished career, Ross has chosen to step-down to focus on his family's health and enjoy a well-deserved retirement.

I'm also pleased to have been elected Chairman of the Board of Governors for the Aerospace Industries Association, the leading voice for the industry. As our country navigates an increasingly complex global threat landscape, maintaining our technological edge has never been more critical. I look-forward to partnering with my industry colleagues, the incoming administration and Congress to leverage the ingenuity of our world-class US talent and drive innovation that strengthens our competitive advantage.

Looking ahead to 2025, our priorities remain clear to drive profitable growth while meeting our customers' evolving mission-critical needs.

I will now turn it to Ken to provide details on our financial results.

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Thanks, Chris, and good morning, everyone. Let me recap full-year 2024 real quick. Revenue was $21.3 billion, up 10% and 4% organically. Segment operating margin was 15.4%, reflecting continued cost-savings and strong execution. Non-GAAP EPS was $13.10. Free-cash flow grew to $2.3 billion, representing an increase of 14%, driven by earnings growth and effective working capital management. For the 4th-quarter, revenue was $5.5 billion, up 4% organically with a segment operating margin of 15.3%. Non-GAAP EPS was $3.47 and free-cash flow came in over $1 billion.

Turning to our segment 4th-quarter results. SAS delivered revenue of $1.7 billion, down 4% year-over-year, largely reflecting the divestiture of the antenna business. Organically, revenue was down 1%, primarily due to lower F-35-related volumes as our TR3 mission computing hardware transitions from development to a more gradual production ramp.

Operating margin was 10.8%, up 20 basis-points, primarily due to LHX next cost-savings and partially offset by challenges on some of our fixed-price development programs in space that are in the later stages of completion. IMS delivered strong results with revenue of $1.8 billion, up 9% and margin of 13.4%, expanding by 150 basis-points. This performance reflects strong program execution and a favorable mix. We're pleased with the momentum at IMS and feel confident in the strength and resilience of this business as it continues to perform.

CES achieved revenue of $1.4 billion, up 5%, driven by demand of software-defined resilient communications equipment. Operating margin was 24.4%, driven by a heavier mix of deliveries to US DoD customers. We are seeing particularly strong demand and international momentum, winning key programs with NATO allies and expanding into other international markets. But I'd remind you, international and domestic mix fluctuate based on quarterly delivery profiles.

Aerojet Rocketdyne grew 5% with an operating margin of 11.5%, up 40 basis-points, supported by progress on solid rocket motor production and offset by lower-volume in space propulsion.

Now let me turn it back to Chris to cover some operational achievements for 2024.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Let me start with our portfolio. We completed the integration of the Aerojet Rocketyne and Tactical data link acquisitions and we also divested our antenna products and Aerojet Ordinance Tennessee non-core businesses. We further strengthened our leadership position in space, delivering four satellites to orbit for the SDA and one for MDA. Our progress in satellite systems and space superiority continued to gain momentum in 2024, reaching a record backlog of 40 satellites in just five years, a noteworthy achievement considering we started with no satellites as a prime.

A significant highlight in our SAS segment was successful completion of the customers engineering design review for 18 space vehicles under the SDA's Tranche 2 tracking layer program. This milestone confirms our advanced space vehicles equipped with infrared payloads to detect, track and target hypersonic threats meets the rigorous requirements of the program. Completing this milestone in just 11 months reflects the speed, agility and expertise of our team. These satellites are part of the Space Force's LEO constellation, providing global missile tracking and defense.

With 38 satellites awarded across Tranche 0, 1 and 2, including those already on orbit, we continue to support the efforts to advance integrated deterrence. With the Tranche 3 opportunity on the horizon, we are well-positioned to expand our role in-building this critical layered missile defense system. Furthermore, this capability positions us well to support the evolving defense needs of the US and aligns closely with the Trump administration's recent executive order directing the development of an Iron Dome missile defense shield for our homeland.

We've also made significant progress on our LHX Next initiative. In 2024, we exceeded our gross cost-savings target by 2x, reaching $800 million. This strong performance provides confidence in our ability to accelerate and exceed our overall cost-savings target. We are now expecting to achieve $1.2 billion in cumulative cost-savings by the end of 2025, exceeding our $1 billion commitment a year early. This initiative is driving margin expansion, operational efficiency, facility rationalization and enhanced supply-chain management. At its core, OHX NEXT embodies the same principles as Doge, tailored to drive greater speed and efficiency to allow data-driven decision-making. We are driving improvements across our operations and supply-chain, simplifying and streamlining internal policies to eliminate inefficiencies in monetizing end-of-life assets to sharpen our focus and unlock value. This program enables us to respond more effectively to evolving customer needs while creating value for our shareholders.

Back to you, Ken.

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Turning to guidance for 2025. We expect revenue of $21.8 billion to $22.2 billion, representing organic growth of 4% at the midpoint. Our guidance includes a full-year of our Commercial Aviation Solutions business as we continue to work towards closing the transaction. Segment operating margin is anticipated to be mid to-high 15%, supported by continued LHX cost-savings, strong program execution and reflecting investments to drive continued transformation. Free-cash flow is expected to be $2.4 to $2.5 billion, driven by growth, higher profitability and disciplined working capital management.

Our guidance reflects appropriate risk posture early in the year and the dynamics associated with a new administration. We assume a continuing resolution through March of '25 and no other funding delays or impacts. The administration has issued several executive orders that are still being assessed, but are not expected to have a significant impact on our 2025 results. However, as US government contracting officers assess the impact of these executive orders on existing and new contracts, we could see an effect on our Q1 '25 bookings and revenue, particularly at CES, which can do -- which can deliver product rapidly against order intake. Beginning in 2025, following comments from many of our investors, we are revising the reporting of non-GAAP EPS to exclude adjustments for amortization of acquisition-related intangible assets. This change aligns our reporting with peers and has no impact on our underlying profitability or cash. If this change had been applied for 2024, non-GAAP diluted EPS would have been $9.70, reflecting an impact of $3.40 per share. Our 2025 non-GAAP EPS is projected to be in the range of $10.55 to $10.85, representing growth of 10% at the midpoint.

At the segment level, SAS revenue is expected to grow to a range of $6.9 billion to $7.1 billion, reflecting budgetary constraints in the space sector that we expect to abate in 2026. Operating margin is expected to be in the low 12% range. IMS revenue is projected at $7 billion to $7.2 billion, driven by increased demand in advanced electronics for space and munitions programs as well as maritime solutions with an operating margin in the low 12% range. CS revenue is anticipated to be $5.6 billion to $5.7 billion with margins in the high 24% range, supported by increasing demand for our software-defined resilient communications equipment.

Rocketdyne is expected to reach approximately $2.5 billion, fueled by double-digit growth in the Missile Solutions business. Margins are expected to be in the mid-12% range as we drive continued operational improvements.

As we set our 2025 guidance, we want to highlight the varying number of weeks in certain quarters in 2025 that will result in some variability in revenue and EPS between quarters. In particular, Q1 is a short 12-week quarter and should be considered in your modeling.

Our capital deployment strategy reflects our commitment to delivering value to our shareholders. We strengthened our balance sheet and ended 2024 with a net leverage of 2.9 times, exceeding our target of 3.0. With that achievement, we will maintain a competitive dividend and are focused on repurchasing at least $1 billion of shares in 2025. Additionally, we had another solid year of performance in our pension plan with no significant contributions in '24 and none expected in 2025. To further derisk our balance sheet, we are working to transfer approximately $1.2 billion in pension assets and liabilities to a third-party with little gain or loss and no impact on cash-flow, taking advantage of attractive funding levels and interest-rate environment. We expect to complete this action by the end of first-quarter '25, resulting in a reduction in non-cash non-service FAS pension income, which is reflected in our guidance.

Considering our strong performance in 2024 and our growing confidence in the cost-savings that the LHX Next program will continue to deliver. We are also updating our 2026 financial framework announced at our Investor Day last year and increasing the segment operating margins we expect to achieve to low 16% in 2026.

We are continuing to target $23 billion of sales in 2026, representing 5% organic CAGR and $2.8 billion in 2026 cash, representing a double-digit CAGR with further upside on a free-cash flow per share basis.

I'm proud of the tremendous progress our team made in 2024. This year has been one of transformation, growth and strong execution, underscoring the strength of our portfolio and the talent of our team. We have faced a dynamic and demanding environment, but our ability to be agile and execute with discipline has allowed us to deliver strong results. From achieving record backlog to advancing key strategic priorities, we have demonstrated resilience, the ability to deliver on our commitments even in the face of challenges and remain focused on delivering for our customers and our shareholders.

As we continue to build-on this momentum, I'm excited about what's ahead. The opportunity before us is meaningful and our strategic focus on operational excellence and innovation positions us well for sustained profitable growth.

With that, I'll turn it back to Chris.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

As we look-ahead, we remain steadfast in our commitment to driving innovation and delivering mission-critical solutions that align with our national security priorities. As we navigate an increasingly complex threat environment, L3Harris continues to stand at the forefront of innovation and national defense. Our vision for the nation's next arsenal of democracy is rooted in the convergence of cutting-edge hardware, software and AI technologies that ensure mission success in every domain. This concept goes beyond traditional platforms. It's also providing adaptable, scalable, open and interoperable solutions that give our warfighters a decisive edge. Whether it's in resilient communications, advanced munitions or space-based capabilities, we are enabling the Department of Defense and our allies to stay ahead of evolving threats.

In my recent letter to the Doge, I outlined key recommendations to modernize the national defense ecosystem. These principles reflect our dedication to advancing efficiency, strengthening collaboration and ensuring that the US maintains a technological edge. We encourage others to come forth and submit ideas to the Committee. We are excited to work with the new administration to bring these and other ideas to life and continue playing a pivotal role in supporting the missions that protect our homeland and our allies around the world.

The incoming administration's transparency and understanding of the defense industry sets the stage for disruptive change in 2025. We expect a period of unprecedented evolution and defense priorities and policies. With our agility, speed and commitment to innovation, we are well-positioned to adapt. This new era presents a chance to redefine how we support the warfighter and we are excited to play a pivotal role in driving this change forward and seize opportunities that align with our nation's strategic objectives.

Our work is critical to empowering -- empowering the warfighter who protect democracy, ensuring that they have the tools to maintain global stability. With a deep commitment to innovation and collaboration, we are proud to play a central role in this effort.

Joanna, let's open the lines for questions.

Skip to Participants
Operator

Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. To ask a question, please press star one on your touchtone phone. You will hear a prompt that your hand has been raised. In consideration of other callers today, we ask that you please limit yourself to one question. Should you wish to decline from the polling process, please press star 2.

Your first question comes from Peter Arment at Baird. Please go-ahead.

Peter Arment
Analyst at Robert W. Baird

Hey, thanks. Good morning, Chris and Ken and Dan. Hey, Chris, maybe just to start where you kind of finished, which is you wrote a letter to those Dosche leaders just before the inauguration and you recommended for, I think policy recommendations. Have you heard any feedback or have you had any active discussions? And how do you think this is all going to play-out with kind of and the impacts on the DoD bureaucracy, which I think you've called out many of times. And just how you're thinking that. Obviously, it's been an overhang on the group. We've seen a lot of valuations compress. So be curious your thoughts. Thanks.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah. Thanks, Peter. The -- I'm excited about the dose and I try to parallel the similarities what we've been doing this past year. And as I think as to how we got as a nation, each and every policy and regulation is put in-place to reduce risk and they're well intended. When you step-back after a few decades, I believe the cumulative effect of all these risk reduction policies and procedures have actually created more risk than they've actually resolved or mitigated. So to answer your question, received lots of positive feedback from members of Congress. I was in the Pentagon last week, a couple of other classified meetings. I think a lot of people read the letter. I'm really just trying to start the dialog. I think Congress plays a role. I think the DoD plays a role, the warfighter plays a role. And I think it's important for industry to be part of this ecosystem and give their perspective. I know several others have started to write letters and I threw out four recommendations, there's probably better ones or different ones. It's really just trying to start the dialog, get people to sit-down and say, how can we go faster and get better capability to the warfighter quicker. And I'm excited about the future. And I think, as I said, there's going to be unprecedented change in 2025 and some will be able to adapt and take advantage of it. We plan to be one of those companies and maybe others won't, but let's see what the future brings.

Operator

Thank you. The next question comes from Miles Walton at Wolfe Research. Please go-ahead.

Myles Walton
Analyst at Wolfe Research

Thanks. Good morning. Ken, you've got $150 million -- you get about $150 million of growth in free-cash flow-in '25 and then $350 million at the midpoint placeholder for growth in '26. Can you flesh out what's specifically accelerating? And then also on the increase in LHX next of $200 million, how much of that drops through to actual margin savings versus savings for the customer. Thanks.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah, I'll take that one. In terms of growth and free-cash flow, I think it pretty well aligns with the growth profile that we've laid out. We're growing the top-line '24 to '25, '26. A bit accelerated in '26, as we've mentioned on the top-line. There's a couple items that are resulting in some better opportunities for growth '26, F-35 with TR3, our hardware, development ramp-down and then the production ramp being a bit more, you know, still kind of climbing that ramp-in '25, but accelerating in '26. There's a little bit of space budget challenges in '25. We do see the potential to get some space awards pulled into '25, that will drive '26 revenue and then a little bit of international opportunities as well at IMS. So a little bit of a better growth profile in '26 and '25, continued margin expansion from where we are today to mid to-high 15s in '25 and then low 16s in '26.

And then I would say effective working capital management, the team will continue to do that. And I think if you kind of run that through, it will support the growing free-cash flow profile, both in '25 and in '26.

To the LHX next question, we're still holding to our target of about at least 40% of the savings will result in margin opportunity for the company. And as we look at that, there's obviously some timing of how that works. You got to factor-in the percent complete on the various contracts that we've got in-place at any point in time. It was certainly a strong contributor in '24, margin expansion. It will also be that in '25 and then certainly supporting the '26 margin expansion to low 16% margin rate as well. So we'll certainly work to try to see if we can drive some upside to that above the 40% cost-savings into -- in the margin opportunity. I think the team is working hard on that every day. But as of now, that's kind of what we're seeing in terms of actual delivery of the opportunity to that target that we set.

Operator

Thank you. The next question comes from Douglas Harn at Bernstein. Please go-ahead.

Douglas Harned
Analyst at Sanford C. Bernstein

Good morning. Thank you. I wanted to see how you're looking at the Communications Systems business. And there's a lot of things that sort of lie in there that seem to allow some real margin upside of the software sales for new waveforms, more exports, commercial contracts with LHX that could flow right through. But you know your guidance for 2025 is still below 25% margin. Where-is this going to -- where-is the potential in margin expansion here? Because it seems like you've got a lot of the ingredients in-place to get above the 24% range.

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Yeah, thanks, Doug. Appreciate it. As I mentioned, I'll just -- I'll point out a couple of things. As I mentioned in the prepared remarks, certainly, as we're looking at '25, we've got to go and continue to perform in the business. It's early in the year. And we're certainly thinking about it from a -- just from a risk-adjusted perspective. TS team has demonstrated the ability to produce product to generate margins. So just in terms of looking at margins for '25 at CS, I would say a couple of things. One, we're certainly evaluating the mix between US DoD as well as international deliveries.

From a software perspective, I think we've talked about that kind of comes in chunks here and there. And so we've got to go continue to drive strong deliveries in terms of waveforms that are both integrated into the products and driving high-margin product opportunity as well as waveform upgrades and where we really see the opportunity for high-margin business.

And then from an LHX Next perspective, the CS team certainly has been doing a great job of integrating the cost [Technical Issues] or you know the margin you know compression that we saw in the 4th-quarter really was related to the mix of US DoD deliveries versus international. We're at a higher mix in the end of '23. So I think the team is doing a great job. I do think we'll continue to work to meet, if not beat our segment guidance, and I know the CS team will be often working on that. So feel-good about the opportunity and we'll update you later in the year.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

I'll just chime in, Doug, we're seeing finally more-and-more opportunities to bid and win C2 and C3 systems. So the market is going beyond just selling the software-defined radios and the waveforms that you said. So we're -- we're finally getting to more of a network and systems approach and I think that's going to give us some additional tailwind. I think of all the segments, this one probably has the highest inflation impact from the supply-chain given all the electronic components. So we have to absorb and offset that not only with LHX Next, but our E3 savings. But the trend is positive and we're optimistic.

Operator

Thank you. The next question comes from Sheila at Jefferies. Please go-ahead.

Sheila Kahyaoglu
Analyst at Jefferies Financial Group

Good morning, Chris and Ken. Thank you. Maybe I'll follow-up, Ken on the $1.2 billion of LAX next or Chris. You know you raised it by $200 million and a 40% drops through to the bottom-line, it's about an extra 30 bps on-top of your peer high-margin. So where are you seeing that come through the most? What's really driving some of those opportunities? And if you could just talk about maybe like key KPIs that you track there?

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah, I'll start and then let Ken -- yeah, we're seeing it from a variety of places. Supply-chain, I think we're finally had a pretty good year in not only getting the savings, but building the resilience of our supply-chain, not only the indirect materials, which we probably did first and is a little easier. Now we're working on direct materials and subcontract management. So I think those are going to be big drivers. We're continuing to look at the facility rationalization and the org structure and roles and responsibilities. So I think there's some additional opportunities, similar buckets to what we had before. But in parallel, we're also, as I mentioned, transforming the business as well and making the investments necessary to digitize the company to allow the employees to get data quickly and that is also factored into our guidance. So it's just not a $1.2 billion gross run-rate cost-savings. We're reinvesting in the business, make it an even better and more efficient place to work for the employees. So you net that down. And as you know, even 40% to 30 bps comes in over-time, as Ken said, depending on the percent complete accounting and such. So I think it's been a huge success and amazing accomplishment. We will hit the 1.2 bill in two years and given the size of the company, very proud of that, tack that on to the $650 million we did right at the merger. We've almost taken out $2 billion of cost in six years, which is pretty impressive in my opinion. Anything else, Ken?

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

I would just add, Sheila, that you know, we certainly delivered on the cost-savings in '24. A chunk of that where was some difficult decisions we had to make around labor, but we did realize some labor savings. That's probably the cost that results in the quickest turn into the savings turning into actual costs flowing through the EACs, working hard on some other opportunities. Chris mentioned, supply-chain facilities and then transformation some of the systems and how we work. And those take a little bit more time to flow-through the EACs and into the actual realization of the savings. So we're certainly tracking that. So in terms of your question on KPIs, certainly the generation of the savings, but then also programmatically and through the businesses, how do we track those through to actually delivering on the savings, ordering against new agreements, things like that, long-term agreements and that sort of thing. So I think we've got the right approach. We've got the right metrics. The team is fully aligned and delivering. And I think it certainly continues to contribute to the margin profile '25 and into '26.

Operator

Thank you. Our next question comes from Ron Epstein at Bank of America. Please go-ahead.

Unidentified Participant
at L3Harris Technologies

Yeah, hey, good morning, guys. Chris, how are you thinking about the environment right now with regard to M&A? That's to say with the new administration, maybe things change and Boeing has got some assets for-sale. Is there anything out there that you're thinking about that could be a bolt-on of new technology, maybe investment in something like more venture-oriented given the push towards some of the startups. Broadly, how are you thinking about that?

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah. Yeah. Good morning, Ron. Great question. I do think this administration will probably be more favorable towards allowing acquisitions. As you know, we made two in 2023. They made a perfect sense for us strategically. They did not eliminate competition. And even in the prior administration, we were able to get two acquisitions approved. Relative to the way I look at it, there's -- we've really tried to take more-and-more of this partnership approach. You know, AI is a hot market and I think we have some interesting partnerships and opportunities. I've tried to highlight what we're doing with Palantir specifically. We actually have a couple opportunities that we will be bidding on competitively as a team in the next several months that could actually be awarded in 2025 that deal with next-gen command and control and Army network modernization. Of course, we have to go win those. But it's easier, in my opinion to find partners and work with them when it comes to AI and even autonomy. I think we own small parts of up to 40 different venture-backed companies now. So we're pulling that technology through.

And you know, the next step if we do anything would be a bolt-on type acquisition to fill a niche or to expand the capability, but nothing has come our way yet. We continue to review and get lots of inbound calls and you know, not many of them get a whole lot of traction. I like the playbook we have. We're transforming the company. We're buying back our stock. We're growing the margins.

In fact, when we hit our 2026 goals, we will have grown our revenue, margins and free-cash flow four consecutive years. Just straight-up operationally, no, no exceptions, no exclude this, exclude that, just good old-fashioned organic growth, margin expansion and free-cash flow four straight years and hard to argue against that playbook and we're executing on it and proud of what the team has done.

Operator

Thank you. The next question comes from David Strauss at Barclays. Please go-ahead.

David Strauss
Analyst at Barclays Bank

Thanks. Good morning.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Good morning.

David Strauss
Analyst at Barclays Bank

A couple of clarifications, I guess. On CAS and that divestiture, I think you mentioned it can, but what -- exactly how much of revenue is assumed there? And I guess what is taking so much time for that deal to close? That's the first thing. And then on EACs, what they were in the 4th-quarter and what you're assuming for 2025? Thanks.

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Yeah, thanks, David. From a CAS perspective, you know, there's working through some regulatory and other processes in 2024. You know, there are some different joint-venture aspects to that and just getting all the parties in the same room and an agreement on that. We do anticipate that, that transaction will close-in 2025. From a guidance perspective, 2024 kind of felt like we were hoping it would close and it didn't, we have kept having to update. So we thought rather than having to update each quarter, we would just include it and then we can obviously just back it out once when it when it closes. So we thought that was kind of the easiest way to reflect that business.

In terms of -- in terms of the timing, I wouldn't predict it. We do think it's going to be in 2025 and the revenue of that business is somewhere north of $500 million, $600 million in terms of how that business looks. No major impact on trends at the company-level from a growth perspective or other. EAC, to your question on that one, we did deliver positive EACs at the company-level in the 4th-quarter. As well, we delivered positive EACs, positive net EACs for the full-year of '24. So when we filed the 10-K, I think you'll see somewhere $40-ish million of positive EACs for 2024. And I think even in the face of some program challenges, we've talked about a couple classified programs in our space business that are seeing some issues as we work-through integration and test type activities. These are kind of legacy programs that have been around for a while. And as we've moved into prime positions, we're just working through some of the INT aspects of those types of programs. But even with that, we were able to work hard, generate strong program performance and see positive EACs in '24.

As we look at '25, we don't really project or predict EA -- positive EAC performance. So our guidance generally assumes that we would have flat EACs in '25. And as we're able to perform on the programs and hopefully generate strong performance and net positive EACs in '25, that will be upside to our guidance and our performance for -- for the programs and across the segments. Chris, did you want to comment on that?

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

I just want to, David, emphasize what Ken said on these EACs. And we have literally thousands of programs and what we do is complicated and nothing is easy and nobody is perfect. But this team finds a way to deliver on its commitments. And occasionally there's a tens of million dollar challenge or a couple of million here and it just adds up. But we take our LHX savings, we take our other innovative and creative ideas and we meet our commitments. We don't make excuses. We don't back stuff out. What you see is what you get and these margins are inclusive of all the good news and all the bad news. And we're going to continue to run the business that way and find a way to deliver. And I think that's the culture we've built and that's what the team wakes up every day focused on.

Operator

Thank you. The next question comes from Seth Seifman at JPMorgan. Please go-ahead.

Seth Seifman
Analyst at JPMorgan Chase & Co.

Thanks very much and good morning. Maybe just to follow-up on that on the space charges, should we think about the magnitude there being kind of the difference between the guided margin and kind of where things landed? And then I think you've mentioned in the materials that those programs were nearing completion, kind of how close are we to completing those programs and how much risk remains?

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Seth, from a space program perspective, so you know, I guess at a high-level, I would say, we've got a couple of classified programs we're working through. We are, as I mentioned, at a significant percent complete. We do expect those programs to -- we'll continue to monitor them through 2025. We'll continue to manage risk through 2025. During '24, we did realize probably about $100 million of negative adjustments or negative EACs across a couple of those space programs. And clearly, as to Chris's comment, as the team works hard, we were able to largely offset that. So that's kind of the way to think about it. I do expect we'll, for the most part get that risk behind us in 2025 as we think about some of customer milestones early in '26 and given the nature of the programs, I probably can't comment any further than that. But we'll continue to work. I know the team has got a good approach. You know data is coming in and working through those things and we're very comfortable with what we've guided for '25.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

And I think it's the same story you hear from everyone. A lot of these are fixed-price was only a couple, our fixed-price development programs, some going back seven, eight years pre-merger and I think I've been pretty, pretty clear on my views on these high-risk fixed-price development programs. So we have to have to run-through these and you shouldn't assume in all cases that we're the prime, so it even gets a little more complicated when you have to integrate, you know with the prime and such. So Ken said, we're in the -- we're kind of in the red zone to use a football analogy and we just got to get these things in the end zone and continue to grow the missile tracking business, which is sequentially profitable each and every order and focus on the SDA TR3 win later this year.

Operator

Thank you. The next question comes from Gautam Khanna at TD Cowen. Please go-ahead.

Gautam Khanna
Analyst at TD Cowen

Yeah, thanks. Good morning, guys. Ken, I was wondering if you could elaborate on some of your objectives now with your increased role at AJRD?

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Sure. Yeah, thanks for the question. I'm really excited about the opportunity. And as we look at -- as we look at Aerojet Rocketdyne, I think the priorities are clear. There is absolutely an incredible amount of demand in the market for solid rock and motors to support critical mission needs of not only our country, but also its allies and in addressing the geopolitical threats and issues that are out there. So absolutely making sure that we are increasing our capacity and we have making investments to do that. We'll certainly be making sure that we're doing everything we can to drive capacity on the missile side of the business.

On the space propulsion side, really looking at how we drive efficiency on that side of the business and really think about how we deliver that capability. We've got, I think a solid business that's got like an eight to 10-year backlog and really thinking about how we maximize our performance there, make some investments and position for continued opportunities on that side. And then I think there's some important business there, including the Artemis program, which really is important in terms of returning to the moon. And I think we've been clear that that's a priority as a country.

So very much focused on kind of continuing the leadership there, delivering on our commitments and really trying to get back to growth and increasing profitability and cash-flow at Aerojet and certainly continue to make sure that we focus on delivering our commitments from a finance perspective. I would just say it -- I think Chris' and the Board's confidence in allowing me to take on this additional role does highlight, you know, the strong team that we've got in-place or have put in-place both in Aerojet as well as on the finance side of things. So I am proud of the team that we've built and look-forward to working with them to deliver results, not just for Aerojet, but also across all three.

Operator

Thank you. The next question comes from Gavin Parsons at UBS Financial. Please go-ahead.

Unidentified Participant
at L3Harris Technologies

Great. Thanks. Good morning, Ken, busy guy. Hey. The -- could you size the drag on revenue growth from the LHX next savings outperformance? And then just a clarification, do the 2026 targets also still have CAS fully incorporated? Thanks.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

In terms of the impact on revenue growth from LHX Next, you know, as we are driving the cost-savings through, it certainly does have a -- have an effect on our revenue. And I will remind everyone that primarily on cost-plus programs, but it does also impact longer-term fixed-price programs as well as those run-through kind of the same EAC model. As we look at 2025 and our growth projections, I would think about, you know it may be as in terms of incremental cost-savings, think of as maybe half of that would be a headwind to revenue growth.

And then in terms of -- I think the second part of your question was 2026 revenue and the Commercial Aviation solutions business. And in case it wasn't clear, CAS is in 2025 from a guidance perspective. It is not in 2026 revenue from a framework perspective. And again, we wanted to include it in '25 just so that we didn't have as much noise in the system as we did in '24, expecting to close and then having to update guidance. So Commercial Aviation Solutions in '25, not in the $23 billion framework for 2026 revenues. Hope that answers the question.

Operator

Thank you. The next question comes from Michael at Truist Securities. Please go-ahead.

Unidentified Participant
at L3Harris Technologies

Hey, good morning. Thanks guys. I guess I wanted to go in that same direction, Ken and Chris. So thinking about CAS in the '26 framework, what do you guys see in the backlog that really drives the doubling of that growth rate from '25 to '26 when you strip out CAS.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah, let me take that one, Michael. Yeah, we've -- well, first of all, the portfolio, I'll start with the current portfolio and we look at the national defense strategy and what we think is going to happen. There's going to be a lot of focus in space, maritime, cyber comms, ISR and munitions. We have multi-billion dollar businesses in each of those areas. So I think the core portfolio is going to kind of fuel some growth. We've talked about some of the challenges that the space forces had with their budget, which has been impacting the industry, but I think that's going to correct by 2026. And of course, the whole focus on Paycom or the specific region and the need for comms and networks. So I like the portfolio and I think we're going to get some tailwind there.

To the prior question about the drag, if you will, from LHX Next, yeah, it is a drag a little bit in a cost-plus environment or maybe even where we have these truth and negotiation cost and pricing data scenarios, which is why in my Dodge letter, one of the things is if we have competition, let's just get an RFP out, submit some bids and let's go fast. Let's not have 18 months of auditing to do a relatively quick and competitive bid. So I think we're going to win more business with a lower-cost base. So that's how I think of it in that regard.

I think international, we're still around 21% -- 22% of our business is international. There's been a lot out on there from executive orders and such. But at the end-of-the day, you know, from an FMS foreign military sales perspective, that money comes from the local countries or is nationally funded by the ultimate customer. So I think that provides a tailwind to us. I think the administration has been pretty clear that they want each of these countries to pay their fair share and/or increase their budgets. That's happening.

The other half of our business is direct commercial sale. So that does not even have to go through the FMS process. We're looking hard at the partnerships with AI. I gave a couple of examples with Palantir. I think by 2026, can we get an extra percent or plus of growth from what I call these disruptive partnerships and venture capital and going fast? I believe so and the team does as well. So when I kind of look at those areas and just yesterday, something popped up on border security. Again, another focus of the current administration. We provide all the for the Customs and Border Patrol. We have the comms for the military. It seems that these two agencies are working collaboratively at least on the southern border and that provides us opportunity to have that capability synced and networked. So I guess between international, border security, AI, our portfolio, our lower-cost base, we see a path to the $23 billion. Yeah. I would just add, Michael. I mean from my perspective, a couple of things. And we talked about this in a little bit of the prepared remarks, but F-35 hardware delivery ramping space has a little pause in '25 back to growth in '26. International ISR, certainly Aerojet starting to kick-in from a solid rock and motor perspective, CES, both international demand as well as the next-gen JAMR win really starting to kick-in volume-wise in '26 as well.

Operator

Thank you. The next question comes from Richard Safran at Seaport Global. Please go-ahead.

Richard Safran
Analyst at Seaport Research Partners

Chris, Ken, Dan, good morning. So I'd like to ask you about -- I think the Pentagon almost industry-wide is a recognition that the impact of fixed-price development contracts, contract without inflation escalators, et-cetera. Now assuming you agree, I want to know if you see major changes coming to the contracting environment, do you think they're going to be more rewards for good execution? And how quickly do you think these changes get implemented? Thanks.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah, I have to believe based on everything I've seen and read and the people I've met with. And as a reminder, I think it's only been 10 days since the inauguration. So things are going real, real quick, but there is just a desire, an overall desire to go quicker. And when I mentioned earlier, the Doge organization, which is more than a person or two, it's a whole enterprise. I think the ideas and the suggestions are going to come pretty quickly. So maybe by the middle or end of this calendar year, there'll be some changes that could affect by 2026. You know, the things that I threw out and as I said, I'm sure there's better ideas out there. These are just policy and elimination of bureaucracy and regulation. This is in fact, you know, people that work-in the Pentagon, people work-in the government. I know they're hardworking and dedicated and doing good work for the nation. They just are hampered by the tools and the regulations that have grown-up over-time. So you know, I think that the companies that are going to win are the ones that can go fast that can get solutions that aren't vertically-integrated that aren't closed systems.

And I think we're leading the industry, as I said, with these partnerships and kind of straddling and working collaboratively with the traditional primes, working with the new entrants, sometimes we'll prime, sometimes we'll sub, sometimes we'll be a merchant supplier. I think just having that culture of innovation, speed, creativity and being open-minded to serve your customer is going to play well for us. So I'm hopeful that change -- change comes. And again, you know executive orders come out every other day. I know some are out, they're rescinded. There's a letter says this, the letter comes out, says, forget, don't do what I just said. And Ken hit it well. The first-quarter is just going to be lumpiness, right? We read these things every day. A lot of pressure on the contracting officers. Do we all have to modify contracts for DEI, do we not have to modify them? We'll work-through this stuff. I mean the key is you know we follow the law, we get the guidance, we adjust and we move forward. So I think it might be a couple of bumpy months here as things go back-and-forth. But again, we have record backlog, we have existing contracts. We have a path to our commitments for '25 and hopefully there'll be change that makes us even more efficient as an ecosystem.

Daniel Gittsovich
Investor Relations at L3Harris Technologies

Joanna, let's take the last question.

Operator

Thank you. The last question comes from Ken Herbert at RBC. Please go-ahead.

Unidentified Participant
at L3Harris Technologies

Yeah, hi. Thanks for squeezing this in. Chris or Ken, as you look at your exposure to Ukraine, can you level-set us on sort of directly or indirectly, how you see that? And maybe then just to put a finer point on the international opportunity, where do you see international growing at for you within the portfolio in '25 and maybe how much does that accelerate into '26?

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah, I'll take the first one and we'll kind of keep it short. I think we're talking about tens of millions of dollars as I see it. When we talk about Ukraine, we're really talking about US government assistance, which is different than FMS, DCS or such. So we have tens of millions in backlog already. We believe that whether it's in the form of aids or loans or whatever, that will continue and execute and deliver termination costs probably equal the cost of delivering the product. And then going-forward, we have to see what the policies are, but it's -- it's manageable and it's in that -- it's in that dollar range for that one country, which has historically come through either an aid alone or what I would call broadly US government assistance, I think that is coming to an end. It's a small percent of our international business. And relative to the growth rate on international. Ken, you want to take that and we'll wrap it up?

Kenneth L. Bedingfield
Senior Vice President & Chief Financial Officer at L3Harris Technologies

Yeah. Thanks, Chris. And yes, Ken, appreciate the question. From an international growth perspective, we certainly do see the opportunity to grow international faster than domestic. But I think we see both areas of the business growing. So Chris highlighted, we're a little north of 20% of our revenue from international. Could that grow a percent or two? I think it can. But obviously, the team that's working the domestic opportunities is hard -- hard at-work trying to grow those revenues as well. So I think they both contribute to your question on Ukraine, we're seeing significant demand across all international markets, whether it's our NATO allies, Asia-Pacific, even Latin and South America. And you know, we certainly saw opportunities to support our ally in Ukraine in '23 and '24. There will be beyond the US aid programs that Chris referenced, I think other countries that may have some opportunities to acquire some capability and provide it to their allies as well. So a growing opportunity set. I think international can grow a little bit faster, it could grow a percent or two and percentage of total revenue but you know we're growing both aspects of the business. So it's a good problem to have. All right. I'll turn it back to Chris.

Christopher E. Kubasik
Chair & Chief Executive Officer at L3Harris Technologies

Yeah, why don't we wrap this up. As I reflect on 2024, I have to say I'm incredibly proud of my leadership team and all the employees for what we accomplished. So I want to thank the 47,000 employees with a focus on performance and execution throughout the year. If you work at L3Harris, you get accustomed to change. The last five years, we've had change on a regular basis. So I think that's going to help us adapt to the change even though we don't know what it is coming forward. So as I said earlier, our strategic priorities remain the same. We have a dedicated and talented workforce. I think we're going to continue to grow profitably. The 2026 framework is achievable and our focus here is to grow and create long-term value for all of our stakeholders. So thank you all for joining the call. We'll see you in the months ahead and we'll do this again in April. Have a great day. Thanks.

Operator

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.

Corporate Executives
  • Daniel Gittsovich
    Investor Relations
  • Christopher E. Kubasik
    Chair & Chief Executive Officer
  • Kenneth L. Bedingfield
    Senior Vice President & Chief Financial Officer
Analysts

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