L3Harris Technologies, Inc. Price & Performance (LHX)

During our January call, I discussed how this administration is planning to drive transformative change like never before. And we are seeing it unfold daily. L3harris isn't only embracing these changes, we are helping shape the future and advocating for more commercial like business practices within the DOD. Our trusted disruptor culture and mindset continues to deliver results.

It enables us to stay agile and rapidly adapt to the changing environment whether from the administration, or allied partners or world events. The external environment remains dynamic since we live it every day, I thought I'd give you the latest update and how we assess its impact on L3harris. We're pleased that president Trump signed a full year continuing resolution Unlike a traditional CR, this bill allows for new program starts greater budget flexibility, and affirms the budget in line with the expected 1% increase over 2024 levels. Congress is now focused on a reconciliation package which could include over $150,000,000,000 in additional defense funding. We view the continued emphasis by key congressional leaders to bolster our national defense as a positive sign for us. There are many initiatives within the DOD and congress, focusing on existing program capabilities, cost and schedule performance, and investments in emerging technologies. To highlight a few, each service has been asked to reduce 8% of their budget to allow for reallocation of funding to administration priorities. We don't have any insight into these deliberations at this time. Secondly, as part of this process, the 74 MDAP which is the major defense acquisition programs, are being evaluated to identify those that are either 15% over budget or 15% late to schedule.

For the programs where we are prime, our performance is solid, And for those where we are a subcontractor, we are highly dependent on the Prime's performance. The DOD issued their 17 priorities which we are well aligned with.

Our two most recent acquisitions are clearly in the sweet spot for capabilities needed. For the future fight. And the classified interim national defense strategy was released focusing on deterring China, and defending the homeland. All these initiatives may be hard to follow from the outside, but clearly, show a fresh look at aligning dollars to programs that are performing well, while reallocating budget to the administration's identified priorities. You saw that President Trump and Secretary Hagsetz suggested that the upcoming 2026 presidential budget request could be as high as $1,000,000,000,000. This represents strong top line growth and highlights a sense of urgency and is another positive development. Over a 30 executive orders have been issued in the hundred days. And I wanted to highlight a few starting with Goldendome. We're well positioned to support this initiative and ready to respond directly to customer requests and contribute to emerging industry teams given our world class capabilities and missile warning, tracking, and discrimination. We've made substantial investments in new space factories and Fort Wayne, Indiana and Palm Bay, Florida. We're the only company to secure awards across all three tranches of the space Force's tracking layer and are prepared to respond to the recently released RFP for the next tranche expected to be awarded later this year.

Our hypersonic and ballistic tracking space sensor satellite known as HPTSS, launched in February 2024 and is the only proven on orbit system capable of tracking the NewRange hypersonic missiles.

This is expected to be a core component of the Golden Dome architecture. If we were to get an award in the next few months, we could launch enough satellites into orbit while president Trump is still in office thereby having complete coverage of The US.

We broadly participate across offensive and missile programs providing propulsion and attitude control for all interceptors both in production and development. This supports our long term growth underscores our leadership in this area. One of my favorite executive orders is entitled restore common sense to federal procurement. This focus is on simplifying the acquisition process across the federal government. We've been the only major a and d company publicly advocating for reform and supportive of those efforts. I continue to think significant changes in the best interest of the defense ecosystem and the long term benefits will be significant for the country and our company.

Those efforts in prioritizing budget for high priority capabilities advancing innovation, promoting efficiency and acquisition, and implementing risk reduction policies all align with our strategy and keep us at the forefront of innovation customer alignment. As the DoD considers procuring more through a commercial model, we are very comfortable with this approach with over twenty years of experience and about 20% of our products already being sold in this way. At its core, our LHX NEXT initiative embodies Doge's principles. Tailored to accelerate internal transformation through greater speed, efficiency, and agility. Turning to international, we're seeing a significant increase in defense spending as our NATO allies modernize their technology. We continue to see strong demand for our mission critical solutions across key regions. So far, we've seen the need for the most advanced battlefield proven equipment taking priority over politics, and we are staying closely connected with our customers through our NATO offices in countries, including Poland, Germany, and The Netherlands, and The UK. As the global defense landscape shifts, we are exploring new models for collaboration, including partnerships with European domiciled companies. We secured a key international award just after the quarter closed with the Dutch Ministry of Defense for network modernization and software defined radios valued at over $1,100,000,000 The Netherlands selected our radios for their battlefield based on our proven hardware and software which deliver industry leading resiliency, low probability detection, and intercept while ensuring secure and interoperable communications with US and allied forces.

Looking ahead to 2026, we remain confident in achieving our financial framework dollars 23,000,000,000 in revenue, low 16% margins, and $2,800,000,000 in free cash flow. With the priorities of the new administration, we're well positioned to continue to drive profitable growth while meeting our customers' evolving mission critical needs and delivering on our commitments. For example, as a result of our ability to rapidly respond to customer requirements, early in the second quarter, we secured a classified award in our ISR business valued at over $350,000,000 along with a $200,000,000 international award. And with that, I'll turn it over to Ken.

Thanks, Chris.

Our focus on profitable growth is delivering results. We had a strong first quarter with performance reflecting continued momentum and improvement across our diverse portfolio of products and programs. While we're not without challenges, our ability to proactively manage the portfolio addressing headwinds in some areas while driving performance in others, continues to give us confidence in our approach and execution. This is also the first quarter we're reporting under our new non GAAP EPS methodology. This change marks another step in our efforts to improve the quality of earnings, and narrow the spread between GAAP and non GAAP results. Enhancing transparency, and alignment with how we manage the business. Now let's talk about consolidated results for the quarter. Revenue was 5,100,000,000.0 and reflected flat organic growth as we operated through a dynamic external environment and were impacted by a short twelve week quarter. Segment operating margin was 15.6%, marking the sixth consecutive quarter of year over year margin expansion. Non GAAP EPS was $2.41 up 7% year over year.

Free cash was an outflow of about 70,000,000 as first quarter cash flows are typically the lowest of the year.

This represent this represents less than half the outflow we saw in 01/24 and gives us confidence in our ability to deliver free cash of 2.4 to $2,500,000,000 for the year. This quarter, we returned nearly $800,000,000 to shareholders with about $570,000,000 in share repurchases and $230,000,000 in dividends. Marking our twenty fourth consecutive annual dividend increase. Returning excess cash to shareholders remains a top priority and we expect to repurchase more than 1,000,000,000 in shares this year as previously updated. Additionally, taking advantage of favorable market conditions we transferred $1,200,000,000 of pension obligations to an insurance provider without any cash contributions or book losses.

Reducing future risk and volatility. Turning to our segment's first quarter results, CES delivered revenue of 1,300,000,000.0 up 4% driven by continued strong international demand and quick turn book to bill deliveries. Operating margin increased a 50 bps to 25.5% reflecting favorable high margin international mix for resilient communications as well as LHXNEXT cost savings across the segment. [indiscernible] IMS revenue was $1,600,000,000 down 2% and operating margin was 12.8%, up a 40 bps. Revenue declined due to lower aircraft missionization volume, and the anticipated ramp down of an ISR mission operations program. Operating margin increased due to strong program performance, increased volume of higher margin airborne electro optical sensors, and LHX NEXT cost savings. SAS revenue was 1,600,000,000.0 down 6% organically primarily due to lower volumes associated with program timing and reduced f 35 volume as our t r three mission computing hardware transitions from development to a more gradual production ramp.

Operating margin was 10.9% down a 40 bps due to continuing challenges on some legacy fixed price development programs in space, that are in later stages of completion All of this partially offset by LHX next cost savings. AR delivered strong results with 9% organic growth. Growth was driven by improved production volume across key missile programs, and new program ramps. Operating margin declined a 10 bps to 12.1% due to lower net favorable EAC adjustments partially offset by higher volume and LHX NEXT driven cost savings. Now let me turn it back to Chris.

Thanks. Advancing strategic collaborations remains a cornerstone of our trusted disruptor strategy. Most recently, we announced a new partnership with Kuiper Government Solutions Amazon Government Focus subsidiary. This effort combines our trusted tactical communication systems with their global low earth orbit satellite network to deliver resilient, [indiscernible] This capability will offer high speed, low latency connectivity with out of the box interoperability providing greater flexibility and mission assurance across the military, public safety and commercial domains. This collaboration formalizes our joint work and reflects our commitment to delivering secure, resilient communications, in contested environments and creating partnerships with nontraditional participants. It's a differentiated solution that plays to our strengths and aligns with growing demand for hybrid multi layered networks. This arrangement also expands the use of our subscription based and commercial business model revenue. Another new partnership is with Shield AI on the groundbreaking of AI enabled unmanned systems for electronic warfare operations. Leveraging our software defined electromagnetic battle management ecosystem, with Shield AI's Hive Mind Autonomy we're enhancing decision making in complex battlefield environments. This collaboration will provide scalable multi domain solutions for AI enabled control of swarming systems for The US and its allies. We are a minority shareholder in Shield AI.

We're also making solid progress on our partnership with Palantir, Together, we're supporting the US Army's Titan program, where we are leading the communications systems integration for Palantir. Further, we're integrating Palantir's foundry software platform with our software defined tactical radio network. This collaboration is driving new insights and advancements bringing artificial intelligence to the battlefield. By enhancing the data processing power of tactical networks, we're enabling faster, more effective mission execution for war fighters at the edge. Together, we're pursuing a new opportunity that emerged directly from this partnership to modernize and integrate AI and resilient c two comms into a next generation c five ISR architecture for international customers.

Partnerships like these and many others allow us to accelerate innovation and rapidly field advanced capabilities. By taking a more thoughtful and open systems approach leveraging the strengths of our partnerships and existing capabilities and bandwidth, we're able to rapidly adapt, scale, and deliver differentiated solutions that meet evolving, mission critical needs.

Back to you, Ken.

First, a few comments on LHX Next and our portfolio. I'll move into guidance updates. We remain focused on executing our LHX Next initiative and delivering $1,200,000,000 in gross run rate savings this year.

We are nearing completion of the cost optimization phase of this initiative including driving supply chain savings process improvements, and facility consolidation. As a result, may have noticed the reduction in corporate unallocated costs as LHX Next implementation costs ramp down. We will, of course, maintain our continuous improvement framework and drive for year over year cost savings. The next phase of LHX NEXT is centered on enterprise transformation. Leveraging AI enabled solutions, driving enterprise wide digital transformation, and optimizing our supply chain to become leaner and more agile. We are developing our LHX operating system for all functions so that we have a common way of executing and managing our business. We continue to proactively reshape our business, and quarter, we further sharpened our national security focus portfolio, by completing the divestiture of our commercial aviation solutions business the last remaining commercial aerospace business in our portfolio. Additionally, we transitioned our fusing and ordnance systems or [indiscernible] business from IMS to AR as part of our portfolio optimization effort. We expect this shift to drive additional synergies as we align across common customers, and leverage internal expertise for key rocket motor content. Turning to guidance updates for 2025.

As Chris noted, there are several moving parts in the current environment. But the key takeaway is that we see as much if not more, opportunity than risk ahead. That said, our updated guidance reflects a balanced and disciplined approach. It incorporates our solid Q1 performance while taking a risk aware posture as we await greater clarity on several fronts. Specifically, we are monitoring the FY twenty six defense budget, details around the implementation of the 17 priority areas outlined by the DoD. Until we have greater visibility, we believe this is the most prudent path forward and expect to provide further updates on the q two call. With that, we now expect revenue of 21.4 to 21,700,000,000.0 representing organic growth of 4% at the midpoint and reflecting a slight increase relative to growth implied by prior guidance. This update reflects the elimination of about $525,000,000 of revenue related to the CAS divestiture. We are maintaining our segment operating margin guidance of mid to high 15% despite the elimination of higher margin CAS revenue supported by continued LHX NEXT cost savings, and confidence in strong program execution. Non GAAP EPS is expected to be $10.30 to $10.5 At the midpoint, this includes a 55¢ reduction related to CAS, and a 25¢ increase from improved operational performance and capital deployment actions, including the pension buyout.

Despite the elimination of three quarters of CAS revenue, we are reaffirming our free cash flow guidance of $2.4 to $2,500,000,000 driven by growth higher profitability, and disciplined working capital management. At the segment level, we are reaffirming our communication systems revenue outlook of two point I'm sorry, 5.6 to 5,700,000,000.0 with an increase in profitability to 25% from high 24%. IMS revenue guidance is now approximately 300,000,000.0 reflecting a $525,000,000 impact from the CAS divestiture and 300,000,000 from the FOS business transfer to AR. About an $800,000,000 reduction from midpoint of prior guidance.

Operating margin is now expected in the mid in the high 11% range down from low 12% due to the due to the divestiture with plans to offset dilution over time through improved program performance and LHX NEXT savings. We are maintaining our guidance for Space and Airborne Systems with revenue expected in the range of 6,900,000,000.0 to 7,100,000,000.0 reflecting government fiscal year 2025 budget constraints in the space sector that we expect to abate by 2026. Operating margin is expected to remain in the low 12% range. Aerojet Rocketdyne revenue guidance is now approximately 2,800,000,000.0 reflecting the addition of FOS, and continued strong growth in missile solutions. We continue to expect margins in the mid 12% range. Although we are closely monitoring the changing trade landscape, and have put various mitigation strategies in place, we do not anticipate tariffs to have a meaningful impact on our financial results. We're actively managing any impact within our current guidance assumptions. Most importantly, we are ensuring timely access to international components to mitigate potential disruptions. Though these risks are limited. We remain confident in our ability to navigate this dynamic environment while maintaining our focus on execution. With that, I'll turn it back to Chris.

Okay. Before we open it up to questions, I wanna briefly summarize our value proposition and how we're differentiating ourselves in the industry. With strong support from the new administration for defense, and a potential for a $1,000,000,000,000 budget, in 2026, the backdrop is favorable. We're driving relentlessly for profitable growth and are committed to our 2026 financial framework which we continue to gain confidence in. From a top line perspective, the new opportunities we have won in q two as mentioned previously, will contribute to our ability to get there. We have grown our top line organically in each quarter since Q3 of twenty twenty two and except for this twelve week quarter, this will continue for the rest of 2025. Turning to profitability. We effectively manage risk and performance across a diverse portfolio of product and programs, increasing margins even in the face of occasional programmatic challenges. Our LHX NEXT transformation is unique and driving our success. We've now expanded margins year over year for six consecutive quarters and we're delivering double digit free cash flow growth since 2023. With deleveraging largely behind us and share repurchases accelerating, we see a clear path to mid double digit growth in free cash flow per share.

And last quarter, we increased our dividend for the twenty fourth consecutive year. With that, Ina, let's open the line for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. You will hear a prompt that your hand has been raised. And should you wish to cancel your request, I would like to advise everyone to have a limit of one question And if anyone have an additional question, you can put yourself back in the queue by pressing star one. If you're using a speakerphone, please leave the handset before pressing any keys.

Your first question comes from the line of Seth Seifman from JPMorgan. Please go ahead.

Thanks very much and good morning everyone. Chris, I wanted to drill in a little bit on something you said a little bit earlier when you talked about international sales. And particularly in Europe. I think there's some concern over there given the state of relations between U. S. And some of the European allies and a sense that in the comms business and radios in particular, there are some suppliers in Europe. And so sounds like you still have a fair amount of confidence in LHX's prospects there. So I wonder if you could talk a little bit about that. What sort of gives you that confidence going forward?

Yeah. Seth, a great great question, and and I expect you know, that there would be some concern the confidence we're having is is the the orders that we've been able to book and the discussions we're having with our customers. You know, I mentioned the The Netherlands, $1,100,000,000 opportunity here in April that we booked. Poland, Germany, and there's other Eastern European we can't disclose. At the end of the day, it comes down to the crypto the interoperability, and the modernization programs that these countries have undertaken. They need new technology. There tend to be seven to ten year programs, And, given the sense of urgency and the threats in the area, I believe they don't really have the time to go back and and start over.

So, as I mentioned in my prepared remarks, there's a lot going on in politics. But at the end of the day, want the best technology available, and it's proven over and over that our tactical networks are software defined radios are superior, and that's why they're being procured.

Thank you. And your next question comes from the line of Ronald Itztchein from Bank of America. Please go ahead. [indiscernible] Good morning, Chris and Good morning. Yes. Could you speak a little bit more about Golden Bone? You mentioned that you're making some investment there already. Is that in anticipation of award? Have you already gotten award? I mean, how are you thinking about that? And then I have a follow-up, if I may.

Yeah. Yeah. No. On Golden Dome, we've we've been, seeing a lot of, a lot of growth in our, satellite business. We use use that as an example of our trusted disruptor strategy going back several years.

So when you look at the whole portfolio of satellites that we're manufacturing, we needed to develop these, factories. Given the quantity that we have in backlog and those that we end anticipate, in the future. So no golden dome, awards have been made. You know, t r, yeah, t three tranche three for Space Force. The RFP came out. That will be part of the architecture but, it's still still early in the the process. I did mention you know, HPTSS. And if you look at that executive order, you know, it has about eight different, focal points. The only one in there that says accelerate the deployment of HPTSS layer is is critical because we have the only proven satellite in orbit that works. So that is an acceleration That's why I said if we can get an order here quickly, we can have The US covered while the president is still in office. Every other part of that executive order uses the phrase develop. So you know, we feel really good about the HPTSS [indiscernible] I believe this administration is putting money where contractors are performing and know, we're hopeful that we can move quickly, get this under contract, and start launching these capabilities. [indiscernible] the other part of it is with the Aerojet app.

Acquisition, there's a a huge part, with solid rocket motors and and the different interceptors. Ken, do you wanna take that?

Sure. Yeah. And, just high level, Ron, to the investment part of your question, I would say, know, the Golden Dome opportunity aligns very well to investments we have been making in particular, in the area of missile warning, missile tracking, and, that's both in our Fort Wayne operation as well as here in, Palm Bay, Florida. So, you know, we we just believe that, know, smart investments and you know, our alignment to the needs of the customer are you know, being revealed in terms of the the focus on Golden Dome. To Chris' point on, you know, solid rocket motors, I think Aerojet is extremely well positioned, not just from a propulsion perspective, but we're on, you know, just about every interceptor program. To include technologies around the divert and attitude control and how you precisely get an interceptor where it needs to be. So we're looking at a focus on advancing our capabilities and our production and development. On both production and and and develop interceptor opportunities like next gen interceptor, glide phase interceptor. And, also, you know, we do have a business that does targets for the missile defense agency we think that'll be an important part of Golden Dome.

Being able to test the new system and capabilities. So we're looking at opportunities to work with the missile defense agency to try to accelerate that as an enabler for the system as well. So excited, and I think we're very well positioned.

Thank you. And your next question comes from the line of Doug Harned from Bernstein. Please go ahead.

Good morning. Thank you. You know, on on SAS, you've had a lot of success winning SDA contracts.

And and those are easy for us to see. But when you look at the challenges that you know, you've gotten you recognized this quarter, with respect to classified programs. Can you help us understand sort of the scale of, you know, the split here between classified and other. I know it's hard, but to give us a sense of where the challenge programs are headed. Are we gonna see these the negative impacts, I guess, on margins and see that dissipate, as we head into 2627. Sure, Doug. I could take that question.

I I would, I would say that, know, maybe addressing the last part of the question first on the challenges You know, we're certainly managing the challenges on these programs.

We've seen it in you know, kinda tens of millions of dollars of negative adjustments across a couple of programs.

And as we've said, those programs are nearing completion. So we do expect that these challenges, while not necessarily, behind us [indiscernible] you know, in a bread basket and, you know, should be you know, behind us in in '25 or early twenty six. Importantly, these are important, programs for our country.

And the warfighter and we see it as a strong growth area in the future. And we expect as we've got the technological challenges behind us, it'll be a a solid growth area for us with, with good profitability as we move forward.

And then on the SDA business, you know, that is I would say, you know, it's been a great business model for us. You may remember that we moved from, you know, call it a highly capable weather sensing system to a capable missile warning, missile tracking system through advancements in the sensor as well as algorithms and, ground processing.

We were able to, you know, get a position on prime in that dealt with some challenges on that back in '22 and '23.

And as we've won successive awards from tranche zero to tranche one to tranche two, we've been able to drive down cost, give the customer confidence, and at the same time, increase our profitability tranche by tranche.

So we're really pleased with the investments we've been making in the, in the space business. It's not without its challenges. We do hard stuff. You know, I'll be clear on that. But it is important important work for our country and for the war fighter. We're proud of the work we do. We're proud of the challenges we take on.

And, I think we've got, you know, a solid path to managing through it. While meeting, the guidance that we've put out for you.

And I'll just just chime in there, Doug, that, we call these legacy programs because in they they're several years old in some cases. Predate the the merger. Which is why I've been, pretty outspoken, about the fixed price development programs, which which these are and how they can come back and, have have challenges as you're developing and doing hard stuff, as Ken said. I do wanna emphasize this does pave the way for future work. None of those programs have been bid don't have fixed priced options. So we will know the actual cost We'll know the techno technological specs. And as additional work comes forward, or similar or identical constellations or satellites. I'm highly confident we will win and we will make money on those.

Thank you. And your next question comes from the line of Sheila Kahyaoglu from Jefferies. Please go ahead. Good morning, Chris and Ken. Maybe just to stick to SAS, can we talk about the airborne side of the business? What do you see as prospects there? It seems like F-thirty five is only a near term headwind.

There's a turning point there and maybe new pursuits if you're on F-forty seven. And how do you see LHX playing in that market going forward?

Yeah. Good morning, Sheila. Yeah. The the airborne market is is solid. In in these cases, you know, we are we are subs to, the primes or or the OEMs. You're right on f 35. Twenty twenty five is the low point for revenue. As the, t r three development comes down and the t r three production increases. So we'll see growth for our f 35 portfolio in 2026. And that that involves all all aspects from core processors to weapon release and some of the other capabilities that we have on that plane. Now I was thinking, I'm not sure there's a there's there's a airplane out there that L3harris doesn't have some some content on So, you know, we have some great capabilities, even even things like the the t seven and other new development programs. Were positioned well, and we can support whatever is needed for next gen aircraft and and future planes. So feel good about the portfolio, feel great about the capabilities, this will be a a growth area for us in years ahead.

Thank you. And your next question comes from the line of Matt Akers from Wells Fargo. Please go ahead.

Hey, thanks very much. Good morning. I wanted to to ask Ken, I guess, now that you've been in the Rocketdyne seat here for a couple of months, just curious, initial impressions and kind of thoughts on any opportunities for that business here going forward?

Sure. Thanks, Matt. Appreciate the question. Yeah. Look. My initial impressions are, it's a great business.

It's a fantastic team.

And, we're very well positioned as we look forward to address you know, the the critical needs of our country and our warfighter from a tactical and large solid rocket motor perspective. You know, we're very focused on capacity expansion. In particular, in the missile solutions business.

And I think you're seeing that, start to, reveal its in terms of 9% revenue growth at Aerojet and, you know, solid double digit growth in the missiles business in particular. And, again, that's both, you know, climbing the ramp on the the tactical side, as well as starting to see some new programs kick in in terms of primarily large solid rocket motors. As I mentioned in response to an earlier question, we're excited about the opportunities at Golden Dome. At Aerojet. Again, acceleration of interceptor both production and development programs, as well as targets for missile defense agency. And then we're certainly focused on, the space propulsion side of the business as well. You know, protecting, NASA, SLS, Artemis, and our RS 25 engine there. We believe that particular program aligns very well with national security purposes.

In returning to the moon and makes making sure that we don't seed, the moon to one of our country's adversaries.

Then we're also focused on accelerating and driving production efficiency on the r l 10 largely in support of ULA which we believe is the world's most capable, second stage engine We've made some changes there, driving additive manufacturing, which should enable us to see some efficiencies and acceleration as we move forward. So great business, great team. I'm really excited to be leading it.

And, I've been spending fair amount of time in, some of the Aerojet facilities Camden, Arkansas, West Palm, Canoga Park, California. And as I've been engaging with the team, it's it's just it's fantastic. And you know, we're we're really very well positioned.

Yeah. And then my, discussions with the customers there, they're very pleased that, L3harris made this acquisition. And more importantly, they're, impressed with the the turnaround. So I believe we're, absolutely in the right market at the right time. And, the future is quite bright.

Thank you. And your next question comes from the line of Noah Poponak from Goldman Sachs. Please go ahead.

Hey, good morning everyone. Hey Noah.

Just a few questions on the outlook. A few of the outlook items. [indiscernible] divestiture coming out reiterating the 23,000,000,000 for 2026, I think, require closer to 7% organic growth in '26 verse the four this year and the four in the CAGR you've talked about. Can you maybe just talk about you know, I know you've described an opportunity rich environment here, but how much risk is there to know, just getting things on contract quickly enough to to achieve that? And then, for for '25, can the the pension income and interest expense change, I think, look like about 20¢ and you you called the 25¢ operational. I'm just wondering how much you're you're ahead of plan operationally versus that being below the line.

Sure. Let me, let me address the the first question. And then I can get to the to the second part there. So look. In terms of the growth drivers, the 2026, you know, Chris mentioned in his prepared remarks that we are building confidence to the '26 framework and the $23,000,000,000 in sales. There's a number of moving parts, and let me just kinda walk through them. First of all, Chris mentioned, classified award that we booked early in the second quarter at IMS.

And we see that, contributing to revenues in '25 and into '26. There's also an IMS International booking that Chris mentioned, and we see that contributing in '26.

We believe that space will return to growth. As we mentioned, there's some budgetary challenges in government fiscal year '25. But we know that there's a focus on that and we see more budget in f y government's fiscal year '26 on space. Whether that's s d a t three, potentially accelerating into the fourth quarter, of '25 as an award. As well as the potential for upside on Golden Dome opportunities. And then Aerojet Rocketdyne will continue to contribute growth in terms of missiles, [indiscernible] again, both at the tactical missile level as we climb the ramp as well as of the development wins that we've seen in the interceptors and large solid rocket motors. That's across a number of interceptor programs, a classified program, Sentinel, and and others. And then, as Chris mentioned, the f 35, headwind that we see in 2025 will will abate So we are, you know, we are building confidence. We understand it's a 7% growth rate in the twenty six.

But we feel like we've got a really solid path to, to get there.

And feel better about that today than we did one quarter ago. Yeah. In terms of the second question, you know, we look at, our performance in q one We think it was it was solid performance. I'm not gonna parse out $05 here or there at the at the EPS level, but we think the, operation certainly contributed There, clearly is some benefit of interest and capital deployment. Actions, whether it's pension, or, as we've updated know, we think share count with the repurchase that we've done in the first quarter will be somewhere between a hundred and 88 to a hundred and 89,000,000 shares versus previous hundred and 90. So we're feeling good about about what we're doing to drive, upside to EPS, whether that's performance of the segment line or capital deployment actions and you know, we're just we'll continue to crank through that and try to drive upside at the segments, through the remaining three quarters of the year.

Yeah. No. We we haven't really an abnormal slowdown in in getting orders. I think it's just the, usual change of administration Nothing nothing beyond that. I think just about everybody's book to bills were, were below one o. We gotta manage it and look at that at a, LTM basis. So we're at one one four.

On a book to bill, which which gives me confidence in in the growth.

And, again, we have this twelve week, quarter and I think we booked almost a billion dollars of orders in the, first week of, q So there's growth in cyber, which is all classified great opportunities in the Mideast. And these partnerships and focus on AI, I think, are gonna be able to contribute, more in '26 than than maybe people appreciate So thanks for the question.

Thank you. And your next question comes from the line of Robert Stallard from Vertical Research Partners. Please go ahead.

Thanks so much. Good morning. Good morning.

Chris, just wanted to follow-up on Sheila's question from earlier on.

With regard to the F-thirty five. Lockheed Martin said a couple of days ago that they're looking to substantially enhance the capability on the aircraft. Exactly what Jim Takelat said. But I was wondering if there were any opportunities there for L3harris to be involved in this process?

Yeah. I would I would think so. You know, we are leading the hardware, piece of t r three, and I think a lot of those t capabilities when they're combat ready and operational will give significantly, improved capabilities for for that aircraft. So I think we're well positioned. I think, in fact, we're in the midst of of doing a lot of that that work now. You know, we never really talked about the retrofit market. So to the extent there's continued upgrades in the core processor or the digital cockpit or the memory system, We always talk about the current deliveries, but there's also a a retrofit perspective. So I think we're well positioned. I think we're one of the few that have the capabilities they need. So we'll work closely, with Lockheed and see how we can help and support them. Thank you. And your next question comes from the line of Myles Wilson from Wolfe Research. Please go ahead.

Thanks so much.

Chris, I was wondering some defense executives have had meetings with the president and sort of made direct appeals it relates to their solutions. I'm curious to the extent that you've been able to do that. And then maybe more from a budget perspective, what is the timeline you're currently thinking about in terms of gaining visibility into the fiscal twenty twenty six budget, the Golden Dome and the 17 priorities areas. Do you see that as being sort of a May, June or later than that? Thanks.

Yeah. Thanks, Miles. I'll I'll I'll take the second one first. Yeah. We're we're actually expecting the 2026 PVR in in the month of May. I think it's gonna be referred to as a skinny PVR with the dollars allocated more at the mission level than at the program. Specific level, a little different than than in the past. And I think a lot of those are gonna probably be aligned you know, with those priorities, whether it's, homeland missile defense, munitions, autonomy, counter UAS. And then at that level, yeah, we're working hard to make sure that our programs are supported and and the dollars will be allocated to them. It's a little different process, but we'll we'll have that number. Everyone will have it, I think, within the next couple weeks is what I've I've been told.

And, relative to customers, I can assure you I I spend a lot of time in DC or wherever I need to go to meet with the right people and not only myself, but the segment president. So I I feel we have access pretty much to anyone we need and want access to and I think our message is is clear and concise and it's unique. And, people appreciate the capabilities in the speed in which, we're willing to to do the work. So feel real good on that front.

Thank you. And your next question comes from the line of Jason Skarski from Citigroup. Please go ahead.

Hey, you've been pretty forward leaning on procurement reform and the need for it and have even given some prescriptions to the building. I'm just kind of curious to get a few thoughts few more thoughts from you. These efforts, obviously, are are are geared towards, you know, speeding things up and saving money. And I'm kind of curious on the saving money part, whether this is to put downward pressure on on spending overall or if it's to increase the purchasing power of DoD so they're get more for the money that they're spending. Would love to get what your thoughts on on what the intent here is And then maybe just talk a little bit about what you think would be some low hanging fruits, some easy wins for them to go get And then lastly, what do you think the overall impact of an exercise kind of like a rewrite of far, is going to have on the industrial base? Is this going to favor one type of company versus another, one type of technology versus another? Just kind of your overall thoughts on the longer term implications for the industrial base as we go into what looks like is going to be a maybe a full rewrite of FAR.

Thanks.

Yeah. Thanks, no. I'm I'm passionate about trying to drive, reform, and there's a lot of initiatives out there driven by, the war fighter members of congress, and I just wanna make sure that the defense industrial base you know, has the seats at the table because we we do have a, do have a [indiscernible] So, you know, speed speed and agility saves saves money, and the quicker we can make these acquisition, decisions and the sooner anyone can get under contract, the better off we are as a country because we can get those capabilities to the war fighter. So by saving money not only in reducing the time to get an acquisition, but allowing companies to have multiyear contracts commercial terms. We have so many competitive bids. You know, let's put out the RFP. Let's get the proposals, and let's make a make a decision and and and go quick. And and the goal would ultimately be to get more purchasing power I mean, the defense industrial base in my opinion, has pretty much absorbed, all the inflation and the impacts of COVID. Given all of our hundreds of billions of dollars of backlog. We have not been able, until recently, you know, to flow those costs through.

So the, quantities that our customer is getting or less than they probably want. So this will be a a way maybe to to increase back the the quantity. You know, and and I I did write a letter you know, reforming FAR, getting rid of the cost accounting standards. I think it's odd that, you know, we need three sets of book [indiscernible] Tax sets, and and cost accounting. Drives incredible amount of inefficiency, audits out the wazoo, disclosure statements makes it hard to run the and do what you would think would be a logical thing. Relocating businesses, consolidations, all that take on us. A life of their own. The truth in negotiation, you know, to have those requirements for every contract over $2,000,000 you know, is pretty much darn near everything they buy. If we wanna keep Tina, which I'm in favor of, you know, we ought to raise that to half a billion or a billion dollars. And and then it just comes down to commerciality. And, like I said, if we can get more DOD commercial like, practices, business practices, I think that's great. I think it's gonna favor the companies that, can adjust and go quickly and, adopt, to new change.

I think our culture mainly as a result of, what we've done with LHX NEXT I think our employees are used to change on a on a daily or weekly basis. So I think we can adapt rather quickly. There'll be IT cost and systems cost and all that kind of stuff, but, hard to imagine there's anything negative. Coming out of this type of reform. And even, secretary, Hagset put out guidance on buying software. So the future software resilience communications, change in the way they buy, these types of [indiscernible] whether it's subscription, commercial, or otherwise, I think is a game changer for the industry and a game changer for L3harris. And can't wait to get to that point.

Thank you.

And your next question comes from the line of Michael Ciarmoli from Truist Securities. Please go ahead.

Hey, good morning, guys. Thanks for taking the question. Ken, just going back to I think Noah's question on that bridge to 2026 growth. I think I heard some of the wins, which I think were international. International rev revenue looks to be up about 10% this quarter. Do you have any assumptions for sort of the international growth trajectory for the remainder of this year into '26. And then just the other one, is there any more portfolio shaping that you think materializes between now and call it the end of the year or you know, you think you're kinda set in the, organization right now?

Sure. From an international perspective, as I was answering Noah's question, and talking about the particular drivers to '26, there was a, a particular, international award at IMS within the ISR sector that I was referencing there.

Your question on international, yes. It is growing faster than the overall business.

And we expect that to continue. Much of that is within communication segment a bit at IMS as well.

And, you know, we've got that factored into, into the guide.

And certainly, as I said, it it it is a part of how we're confident in getting to the, 2026 numbers. So, you know, feel good about that. And, you know, again, overall, I think that the the cards are are laying down real nicely for us.

In terms of in terms of the benefit. It's not, you know, one or two things that are gonna get us there. I think we got a solid path of you know, five or six individual, items that are are all either booked and, you know, will be in in q two backlog. Or, you know, we've got a solid path to, solid path to getting there. So again, we feel really good about that. International absolutely will contribute, but, solid domestic growth as well.

And we see that enabling us to get to that 7% growth for twenty six. Was there a second part of the question, Michael?

Asking about portfolio shaping whether there's any more anything left to be done.

Yeah. Thank you.

Yeah. I'll I'll just take that one. Yeah. We're we're always looking, at at refining the the portfolio and would say nothing nothing significant. You know, we're not obviously trying to be the largest company. We're trying to be the most valuable and there's a benefit of of, focusing on those core competencies that that you're good at. Whether it's ISR, space, resilient comms, weapons and munitions, we still have a lot of small one off, entities that, in all honesty, don't really move the needle and we get calls on a regular basis. So we can get a good price maybe we do a little bore pruning. But, you know, there's a lot of concern on the growth of of 26. But it comes down to the portfolio. And if you look at our portfolio, I mean, I couldn't be happier with what we have. And then in just the five years or so since the merger, you know, we did divest. And have divested over $3,000,000,000 of revenue. And we've acquired $3,000,000,000 of revenue And if you'd look at these priorities, whether it's nuclear modernization, defense, munitions, You look at these MDAP programs and our performance, you know, probably not having a huge platform is is is not a bad place to be at this particular point.

So I think it's all about the portfolio. We've got the portfolio aligned with this current administration's [indiscernible] We can go fast. Our products that expensive, which is why they're appealing internationally. And this partnership strategy is is making a difference. I gave a couple highlights whether it's Kuiper, Palantir, Shield AI. We have a couple others in work We are the go to people that are willing to work with anyone as a prime, as a sub, as a merchant supplier, and, that's gonna fuel the growth.

For the future.

Hey, Nina. So let's, let's take the last question.

Thank you. And your last question comes from the line of Peter Arment from Baird. Please go ahead.

Hey, thanks. Good morning, Chris, Ken, Dan. Hey, Chris, you mentioned FDA programs in your opening remarks. I was wondering you could just give us an update on how the contracts are performing there. I know there were some leadership reviews going on and it doesn't seem like it's resulted in any delays in the programs. Just in the context of Golden Dome, are there going to be overlap Or just how you're thinking about that overall effort here with your satellites? Thanks.

Yeah. Thanks, Peter. Yeah. Tranche zero, is in orbit performing well. One and two are are moving along. Ken and I actually had couple hour reviews, earlier this week to go through these. It is gonna be part of the the Golden Dome architecture as we understand it. They put out the RFP. This was gonna be a 2026 award. Now looking at accelerating it into 2025. You know? So I think we're we're well positioned. We're making money. We're delivering on time, and these are pretty reasonably priced in the big scheme of things. So we're excited about it. And, you know, all these constellations we keep talking about you know, tend to have three, five, six year lives. So once you get them up, whether it's, you know, 50, a hundred, or 200, there's gonna be a recycle or replenishment, as well. So I think we're real well positioned in in the future of bright especially in missile tracking and warning. And, with the hypersonic threats out there.

So, let me let me wrap it up here as we close today's call. Wanna express my gratitude to our dedicated team of employees and leaders for their hard work and resilience. The progress we've made over the past couple of years is a direct result of their efforts, and I'm proud of what we've accomplished. Before signing off, I'd like to take a moment to remember Rob Spingarn, a long time a and d research analyst and friend who recently passed away. Rob is a valued member of the investment community and we always appreciated his insights and professionalism that he brought to every interaction.

Our thoughts and prayers are with his family during this difficult time.

And he'll be greatly missed.

Thank you for joining us.

Thank you.

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