- Full year (FY) 2023 orders1 of $22.8 billion; book-to-bill
of 1.18x
- 4Q23 revenue of $5.3 billion and FY23 of $19.4 billion, up
17% and 14% respectively
- 4Q23 operating margin of 2.9% and FY23 of 7.3%, reflecting
goodwill impairment for pending business sale
- 4Q23 segment operating margin1 of 15.1% and FY23 of
14.8%
- 4Q23 earnings per share (EPS) of $0.83 and FY23 of $6.44;
4Q23 non-GAAP EPS1 of $3.35 and FY23 of $12.36
- FY23 cash from operations of $2.1 billion, free cash flow1
of $2.0 billion
L3Harris Technologies, Inc. (NYSE: LHX) reported fourth quarter
and full-year 2023 results, and initiated 2024 financial
guidance.
“We delivered on our 2023 financial commitments and reported
record backlog of $33 billion, further demonstrating that our
strategy to be the industry's Trusted Disruptor is working. Our
agility and innovation continue to resonate with customers,
enabling us to broaden our capabilities into high-growth markets,”
said Christopher E. Kubasik, Chair and CEO. “Last year, we also
closed, integrated, and are benefiting from two acquisitions and we
announced the sale of a non-core business. These actions are
strengthening and better aligning our portfolio with the Department
of Defense and U.S. allied partner priorities.”
Kubasik continued, “We are confident on achieving the financial
framework that we shared in early December at our investor day,
while we execute on our 2024-2026 capital allocation priorities of
reducing leverage and returning excess cash to shareholders.
Entering 2024, we remain focused on driving towards the $1 billion
cost savings target from our LHX NeXt program to enable operational
improvements, margin expansion and free cash flow growth.”
SUMMARY FINANCIAL RESULTS AND 2024 GUIDANCE
Fourth Quarter
Full Year
2024*
($ millions, except per share data)
2023
2022
Change
2023
2022
Change
Guidance
Revenue
Space & Airborne Systems
$
1,800
$
1,702
$
6,856
$
6,384
Integrated Mission Systems
1,627
1,729
6,630
6,626
Communication Systems
1,363
1,193
5,070
4,217
Aerojet Rocketdyne
597
—
1,052
—
Corporate eliminations
(47
)
(46
)
(189
)
(165
)
Revenue
$
5,340
$
4,578
17%
$
19,419
$
17,062
14%
$20.7B - $21.3B
Operating income (loss)
Space & Airborne Systems
$
191
$
193
$
756
$
665
Integrated Mission Systems
(75
)
179
459
494
Communication Systems
356
297
1,229
667
Aerojet Rocketdyne
66
—
122
—
Unallocated items
(384
)
(174
)
(1,140
)
(699
)
Operating income
$
154
$
495
(69)%
$
1,426
$
1,127
27%
Operating margin
2.9
%
10.8
%
nm
7.3
%
6.6
%
70 bps
Segment operating income1
Space & Airborne Systems
$
191
$
193
$
783
$
745
Integrated Mission Systems
194
179
740
861
Communication Systems
356
297
1,229
1,022
Aerojet Rocketdyne
66
—
122
—
Unallocated items
—
—
—
—
Segment operating income1
$
807
$
669
21%
$
2,874
$
2,628
9%
Segment operating margin1
15.1
%
14.6
%
50 bps
14.8
%
15.4
%
(60) bps
~15%
Non-service FAS pension income and
other
$
93
$
112
(17)%
$
338
$
425
(20)%
Interest expense, net
$
(171
)
$
(74
)
131%
$
(543
)
$
(279
)
95%
Effective tax rate (GAAP)
(66.7
%)
21.8
%
nm
1.9
%
16.7
%
nm
Effective tax rate (non-GAAP1)
12.4
%
13.6
%
(120) bps
13.0
%
13.9
%
(90) bps
EPS
$
0.83
$
2.17
(62)%
$
6.44
$
5.49
17%
Non-GAAP EPS1
$
3.35
$
3.27
2%
$
12.36
$
12.90
(4)%
$12.40 - $12.80
Diluted shares outstanding
190.6
192.1
(1)%
190.6
193.5
(1)%
Cash from operations
$
789
$
782
1%
$
2,096
$
2,158
(3)%
Free cash flow1
$
747
$
748
—%
$
2,009
$
2,029
(1)%
~$2.2B
nm = not meaningful
* When we provide our expectation for
segment operating margin, effective tax rate on non-GAAP income,
non-GAAP EPS and free cash flow on a forward-looking basis, a
reconciliation of these non-GAAP financial measures to the
corresponding GAAP measures is not available without unreasonable
effort due to the unavailability of items for exclusion from the
GAAP measure. We are unable to address the probable significance of
this information, the variability of which may have a significant
impact on future GAAP results. See Non-GAAP Financial Measures on
page 6 for more information.
Revenue: Fourth quarter revenue increased 17%, primarily
from the acquisitions of Aerojet Rocketdyne (AR), its own reporting
segment, and Tactical Data Links (TDL), reported in the
Communication Systems (CS) segment. Fourth quarter revenue
increases were also driven by 2% organic growth from the Space
& Airborne Systems (SAS) and CS segments. Full year revenue
increased 14%, primarily from the acquisitions of AR and TDL, and
increased 6% on an organic1 basis primarily from growth in the SAS
and CS segments.
Operating Margin: Fourth quarter operating margin
decreased, primarily from the impairment associated with the
pending sale of the Commercial Aviation Solutions (CAS) business
within the Integrated Mission Systems (IMS) segment. Segment
operating margin1 expanded 50 bps to 15.1% due to efficiencies
realized by increased revenue and favorable product mix. Full year
operating margin increased 70 bps. 2022 had a higher level of
impairments than 2023. This improvement was partially offset by
unfavorable net changes in Estimates-at-Completion (EAC). Full year
segment operating margin1 decreased 60 bps to 14.8% primarily due
to the factors noted above excluding the impact of impairments and
other non-recurring items detailed in table 5.
Earnings Per Share (EPS): Fourth quarter EPS decreased to
$0.83 driven primarily by the impairment associated with the
pending sale of the CAS business, an increase in amortization of
acquisition-related intangibles and higher interest expense from
the funding of the AR and TDL acquisitions. Non-GAAP EPS1 increased
2% to $3.35 driven by higher segment operating income1 and a lower
effective tax rate on non-GAAP income, partially offset by lower
pension income and the higher interest expense. Full year EPS
increased 17% to $6.44 driven primarily from lower impairments,
partially offset by lower pension income and the higher interest
expense. Full year Non-GAAP EPS1 decreased 4% to $12.36 driven by
lower pension income and the higher interest expense, partially
offset by higher segment operating income1, lower share count and a
lower effective tax rate on non-GAAP income1.
Cash Flows: Fourth quarter cash from operations increased
1% primarily from less cash used to fund net working capital.
Fourth quarter free cash flow1 was comparable. Full year cash from
operations decreased 3% due to acquisition-related expenses, higher
tax payments and higher interest, partially offset by less cash
used to fund net working capital. Full year free cash flow1 was
down 1%.
SEGMENT RESULTS AND GUIDANCE:
This section contains reporting segment drivers of fourth
quarter and full year for revenue, operating margin, a GAAP
measure, and segment operating margin1, a non-GAAP measure, which
excludes unallocated items, impairments to goodwill or other assets
and the gain on the sale of plant, property and equipment.
Space & Airborne Systems
(SAS)
Fourth Quarter
Full Year
Guidance
($ millions)
2023
2022
Change
2023
2022
Change
2024
Revenue
$
1,800
$
1,702
6%
$
6,856
$
6,384
7%
$6,900 - $7,100
Operating margin
10.6
%
11.3
%
(70) bps
11.0
%
10.4
%
60 bps
Segment operating margin1
10.6
%
11.3
%
(70) bps
11.4
%
11.7
%
(30) bps
mid-high 11%*
* A reconciliation is not available. See
the note on page 2 and Non-GAAP Financial Measures on page 6 for
more information.
Revenue: Fourth quarter revenue increased 6%, primarily
from growth in Space, Mission Networks and Intel and Cyber,
partially offset by a decline in legacy airborne platform volume.
Full year revenue increased 7% primarily from growth in Space
Systems, Mission Networks and Intel and Cyber.
Operating Margin: Fourth quarter operating margin and
segment operating margin1 decreased 70 bps largely due to an
increase in lower margin space revenue. Full year operating margin
increased 60 bps. 2022 had a higher level of impairments. 2023 was
negatively impacted by mix and net unfavorable EAC. Full year
segment operating margin1 decreased 30 bps from the factors noted
above, excluding impairments.
Integrated Mission Systems
(IMS)
Fourth Quarter
Full Year
Guidance
($ millions)
2023
2022
Change
2023
2022
Change
2024
Revenue
$
1,627
$
1,729
(6)%
$
6,630
$
6,626
—%
$6,400 - $6,600
Operating margin
(4.6
%)
10.4
%
nm
6.9
%
7.5
%
(60) bps
Segment operating margin1
11.9
%
10.4
%
150 bps
11.2
%
13.0
%
(180) bps
low-mid 11%*
nm = not meaningful
* A reconciliation is not available. See
the note on page 2 and Non-GAAP Financial Measures on page 6 for
more information.
Revenue: Fourth quarter revenue decreased 6%, primarily
from lower Intelligence, Surveillance and Reconnaissance (ISR)
aircraft missionization efforts, partially offset by increases in
CAS and Maritime. Full year revenue was flat primarily from lower
ISR aircraft missionization volume, offset by higher revenue in
Electro Optical, Maritime and CAS.
Operating Margin: Fourth quarter operating margin was
down primarily from the impairment associated with the pending sale
of the CAS business. Fourth quarter segment operating margin1
increased 150 bps from improved program performance. Full year
operating margin declined 60 bps primarily due to an unfavorable
net change in EACs, the sale of end-of-life inventory in the prior
year and higher volume of lower-margin domestic ISR aircraft
revenue, partially offset by lower impairments and research and
development expenses. Full year segment operating margin1 decreased
180 bps from the factors noted above excluding impairments.
Communication Systems (CS)
Fourth Quarter
Full Year
Guidance
($ millions)
2023
2022
Change
2023
2022
Change
2024
Revenue
$
1,363
$
1,193
14%
$
5,070
$
4,217
20%
$5,300 - 5,400
Operating margin
26.1
%
24.9
%
120 bps
24.2
%
15.8
%
840 bps
Segment operating margin1
26.1
%
24.9
%
120 bps
24.2
%
24.2
%
— bps
low-mid 24%*
* A reconciliation is not available. See
the note on page 2 and Non-GAAP Financial Measures on page 6 for
more information.
Revenue: Fourth quarter revenue increased 14%, primarily
from the TDL acquisition and higher volume of night-vision
products. Full year revenue increased 20%, primarily from the TDL
acquisition and higher volumes of legacy Broadband Communications
programs, Tactical Communications and Public Safety products.
Operating Margin: Fourth quarter operating margin and
segment operating margin1 increased 120 bps primarily from the
acquisition of TDL and efficiencies realized from higher volume.
Full year segment operating margin increased 840 bps primarily from
an impairment in the prior year. Full year segment operating
margin1 was comparable.
Aerojet Rocketdyne (AR)
Fourth Quarter
Full Year
Guidance
($ millions)
2023
2022
Change
2023
2022
Change
2024
Revenue
$
597
$
1,052
$2,400 - $2,500
Operating margin
11.1
%
11.6
%
high 11%*
* A reconciliation is not available. See
the note on page 2 and Non-GAAP Financial Measures on page 6 for
more information.
Revenue and Operating Margin: Fourth quarter and full
year (5-month post acquisition period) results are attributed to
program execution across missile and space programs.
SUPPLEMENTAL INFORMATION:
Other Information
2024
2023
FAS/CAS operating adjustment
~$40 million
$110 million
Non-service FAS pension income
~$260 million
$310 million
Net interest expense*
~$650 million
$544 million
Effective tax rate on GAAP income
1.9%
Effective tax rate on non-GAAP
income1*
13.0% - 13.5%
13.0%
Average diluted shares
Flat - up slightly
190.6
Capital expenditures
~2% sales
2% sales
* A reconciliation is not available. See
the note on page 2 and Non-GAAP Financial Measures on page 6 for
more information.
Non-GAAP Financial Measures
This press release contains Non-GAAP Financial Measures
("NGFMs") (as listed on page 16) within the meaning of Regulation G
promulgated by the Securities and Exchange Commission (SEC).
Management believes excluding the adjustments listed on page 16 for
the purposes of calculating certain non-GAAP measures is useful to
investors because these costs do not reflect our ongoing operating
performance; however there is no guarantee that items excluded from
non-GAAP financial measures will not reoccur in future periods.
These adjustments, when considered together with the unadjusted
GAAP financial measures, provide information that is useful to
investors in understanding period-over-period operating results
separate and apart from items that may, or could, have a
disproportionately positive or negative impact on results in any
particular period. Management also believes that these adjustments
to our NGFMs enhance the ability of investors to analyze L3Harris
business trends, to understand L3Harris performance and to evaluate
our initiatives to drive improved financial performance. We utilize
NGFMs as guides in forecasting, budgeting and long-term planning
processes and to measure operating performance for compensation
purposes. NGFMs should be considered in addition to, and not as a
substitute for, financial measures presented in accordance with
GAAP. See “Reconciliation of Non-GAAP Financial Measures” beginning
on page 11 for detail on the adjustments to our NGFMs. We also
provide our expectation of forward-looking NGFMs. A reconciliation
of forward-looking NGFMs to comparable GAAP measures is not
available without unreasonable effort because of inherent
difficulty in forecasting and quantifying the comparable GAAP
measures and the applicable adjustments and other amounts that
would be necessary for such a reconciliation, including due to
potentially high variability, complexity and low visibility as to
the applicable adjustments and other amounts, which may, or could,
have a disproportionate impact on future GAAP results, such as the
impact of Aerojet Rocketdyne and costs associated with LHX NeXt on
our results and other potential business divestiture-related gains
and losses, other unusual gains and losses, or their probable
significance and extent of tax deductibility. The variability of
adjustments and other amounts may have a significant, unpredictable
impact on future GAAP results.
Conference Call and Webcast
L3Harris Technologies will host a call tomorrow, January 26,
2024, at 8:30 a.m. Eastern Time (ET).
The dial-in numbers for the teleconference are (U.S.)
877-407-6184 and (International) 201-389-0877, and participants
will be directed to an operator. Participants are encouraged to
listen via webcast, which will be broadcast live at
L3Harris.com/investors. A recording of the call will be available
on the L3Harris website, beginning at approximately 12 p.m. ET on
January 26, 2024.
About L3Harris Technologies
L3Harris Technologies is the Trusted Disruptor in the defense
industry. With customers’ mission-critical needs always in mind,
our 50,000 employees deliver end-to-end technology solutions
connecting the space, air, land, sea and cyber domains in the
interest of national security.
Forward-Looking Statements
Statements in this press release that are not historical facts
are forward-looking statements that reflect management's current
expectations, assumptions and estimates of future performance and
economic conditions. Such statements are made in reliance on the
safe harbor provisions of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934.
Forward-looking statements in this press release include but are
not limited to: 2024 guidance; 2024-2026 capital deployment
priorities; the LHX NeXt program costs and savings targets and
their impacts on operational performance, margin expansion and
accelerating free cash flow growth; supplemental financial
information for 2024; and other statements regarding the business
outlook and financial performance guidance that are not historical
facts. The company cautions investors that any forward-looking
statements are subject to risks and uncertainties that may cause
actual results and future trends to differ materially from those
matters expressed in or implied by such forward-looking statements.
The company's consolidated results, future trends and
forward-looking statements could be affected by many factors, risks
and uncertainties, including but not limited to: competitive
markets and U.S. Government spending priorities; changes in the mix
of fixed-price, cost-plus and time-and-material type contracts and
the impact of a significant increase in or sustained period of
increased inflation; the termination, failure to fund, or negative
audit findings for U.S. Government contracts; the U.S. Government’s
budget deficit and the national debt; uncertain economic
conditions; the consequences of future geo-political events; the
impact of government investigations; the risks of doing business
internationally; disruptions to our supply chain; the attraction
and retention of key employees; the ability to develop new products
and services and technologies that achieve market acceptance;
natural disasters or other significant business disruptions;
inability to achieve the expected results of LHX NeXt; indebtedness
and ability to make payments on, repay or service indebtedness;
unfunded defined benefit plans liability; any downgrade in credit
ratings; the level of returns on defined benefit plan assets,
changes in interest rates and other market factors; changes in
effective tax rate or additional tax exposures; the ability to
obtain export licenses or make sales to foreign governments;
unforeseen environmental issues, including regulations related to
GHG emissions or change in customer sentiment related to
environmental sustainability, the impact of any improper conduct of
employees, agents or business partners; the outcome of litigation
or arbitration; potential claims related to infringement of
intellectual property rights or environmental remediation or other
contingencies; expanded operations from the acquisitions of TDL and
Aerojet Rocketdyne, including related to dangerous materials and
real estate assets; risks related to other strategic transactions,
including pending and contemplated divestitures. Further
information relating to these and other factors that may impact the
company's results, future trends and forward-looking statements are
disclosed in the company's filings with the SEC. The
forward-looking statements contained in this press release are made
as of the date of this press release, and the company disclaims any
intention or obligation, other than imposed by law, to update or
revise any forward-looking statements, whether as a result of new
information, future events, or otherwise. Persons reading this
press release are cautioned not to place undue reliance on
forward-looking statements.
Financial Tables
To see the entire earnings tables, please see:
www.l3harris.com/resources/fourth-quarter-and-full-year-2023-results
1Key terms and Non-GAAP measures - see
definitions at the end of this earnings release
Non-GAAP Terms and Definitions
Description
Definition
Amortization of acquisition-related
intangibles
Consists of amortization of identifiable
intangible assets acquired in connection with business
combinations. Amortization charges are recorded over the estimated
useful life of the related acquired intangible asset, and thus are
generally recorded over multiple years.
Additional cost of revenue related to the
fair value step-up in inventory sold
Difference between the balance sheet value
of inventory from the acquiree and the acquisition date fair
value.
Merger, acquisition, and
divestiture-related expenses
In 2023, transaction and integration
expenses associated with TDL and AR acquisitions. In 2022,
transaction and integration expenses associated with the L3Harris
merger. Also, includes external costs related to pursuing
acquisition and divestiture portfolio optimization, non-transaction
costs related to divestitures and salaries of employees in roles
established for and dedicated to planned divestiture and
acquisition activity.
Sale of asset group and business
divestiture-related gains, net
In 2023, related to gains or losses
associated with business divestitures. In 2022, related to an asset
sale in our IMS segment.
Impairment of goodwill and other
assets
In 2023, charges for goodwill impairment
recorded at our IMS segment related to the pending divestiture of
our CAS business and charges at our IMS and SAS segment related to
restructuring of a customer contract impacting both segments and
facility closures in IMS.
In 2022, charges for goodwill impairment
recorded at our IMS and SAS segments related to a weakened outlook
for precision weapons and other solutions and higher interest
rates, and charges recorded at our CS segment related to a lower
outlook on legacy platforms and higher interest rates.
Gain on sale of property, plant and
equipment
In 2023, related to the sale of a building
in our IMS segment.
LHX NeXt implementation costs
Costs associated with transforming
multiple functions, systems and processes to increase agility and
competitiveness. Costs related to the LHX NeXt effort are expected
to continue through 2025, and are expected to include workforce
optimization costs, incremental IT expenses for implementation of
new systems, third party consulting expenses and other related
costs totaling $400M. We expect gross run-rate savings of $1B
exiting year 3. In 2023, costs consisted of third-party consulting,
workforce optimization, incremental IT, and other.
Non-operating income adjustments
2022 includes an $8 million adjustment for
equity method investment earnings.
Other
Other includes charges associated with a
formal restructuring plan and primarily related to employee
severance and benefit arrangements. In 2022 we incurred charges
associated with severance and other benefits related to employees
that accepted a voluntary retirement plan with an effective
retirement date of September 30, 2022. Other also includes an
accrual associated with an ongoing legal matter that is
disproportionately large related to our routine legal expenses or
accruals.
Orders
Represents the total value of funded and
unfunded contract awards received from the U.S. Government, plus
the total value of funded and unfunded contract awards received
from customers other than the U.S. Government. This includes
incremental funding and adjustments to previous awards, and
excludes unexercised contract options and potential orders under
ordering-type contracts, such as indefinite delivery, indefinite
quantity (IDIQ) contracts.
Organic revenue
Organic revenue excludes the impact of
completed divestitures and first year revenue associated with
acquisitions; refer to non-GAAP financial measure (NGFM)
reconciliations in the tables accompanying this press release and
to the disclosures in the non-GAAP section of this press release
for more information. Organic revenue is reconciled in table 4.
Segment operating income and margin
Segment operating income and margin for
each segment represents each such segment's operating income and
margin (GAAP measures), excluding impairment of goodwill and other
assets and gain on sale of property, plant and equipment, as
reconciled in table 5.
Segment operating income and margin on a
consolidated basis represents operating income and margin (GAAP
measures) excluding the FAS/CAS operating adjustment, corporate
expenses and other unallocated items, impairment of goodwill and
other assets, and a gain on sale of property, plant and equipment,
and eliminations, as reconciled in table 6.
Non-GAAP EPS
Non-GAAP EPS represents EPS (net income
per common share attributable to L3Harris Technologies, Inc. common
shareholders, a GAAP measure) adjusted for amortization of
acquisition-related intangibles; additional cost of revenue related
to the fair value step-up in inventory sold; merger, acquisition,
and divestiture-related expenses; asset group and business
divestiture-related (losses) gains, net; impairment of goodwill and
other assets; gain on sale of property, plant and equipment; LHX
NeXt implementation costs; other (charges for severance and other
termination costs and charges related to an additional pre-merger
legal contingency); and non-operating income adjustments. Refer to
the disclosures in the non-GAAP financial measures section of this
press release for more information. Non-GAAP EPS is reconciled in
table 8.
Free Cash Flow (FCF)
FCF represents net cash provided by
operating activities (a GAAP measure) less capital expenditures
(additions to property, plant and equipment less proceeds from sale
of property, plant and equipment, net) and cash used for merger,
acquisition, and divestiture-related expenses. FCF is reconciled in
table 9.
Effective tax rate on non-GAAP income
Effective tax rate on non-GAAP earnings
represents the effective tax rate (tax expense as a percentage of
income before income taxes, a GAAP measure) adjusted for the tax
effect associated with amortization of acquisition-related
intangibles; additional cost of revenue related to the fair value
step-up in inventory sold; merger, acquisition, and
divestiture-related expenses; asset group and business
divestiture-related (losses) gains, net; impairment of goodwill and
other assets; gain on sale of property, plant and equipment; LHX
NeXt implementation costs; other (charges for severance and other
termination costs and charges related to an additional pre-merger
legal contingency); and non-operating income adjustments. Refer to
the disclosures in the non-GAAP financial measures section of this
press release for more information. Non-GAAP effective tax rate is
reconciled in table 7.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20240124826434/en/
Investor Relations Contact: Mark Kratz, 321-724-3170
investorrelations@l3harris.com
Media Relations Contact: Sara Banda, 321-306-8927
sara.banda@l3harris.com
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