The efforts that they’ve put in over the last 18 to 24 months in truly building a resilient supply chain that allows us to pivot when we continue to experience these hiccups is enabling us to continue to deliver for our customers and for our shareholders. And the other thing I would note for this quarter is that our overall deliveries are actually up from Q2. And so we continue to see the results of the efforts and the diligence that the team has put in over the last 18 to 24 months.
Operator: Our next question comes from the line of Noah Poponak with Goldman Sachs.
Noah Poponak: Chris, so you’ve alluded to the competing inputs for national security spending. I guess when you think about what’s evolving geopolitically versus what’s evolving with the deficit battle in the U.S., maybe some of the short-term items as well. I guess, what do you — how are you thinking about what your medium-term end market growth rate is? And your latest thinking on the L3Harris spread versus that growth rate?
Chris Kubasik: Yes. No, thanks. Noah, I appreciate the question. As I step back a moment, I think kind of implied in there is the budget and what’s going to happen with the supplemental. So as we all know, we finally have the speaker of the house, so that’s step 1. I do believe and I’ve been pretty outspoken on this. It feels like it’s an even more dangerous world than it ever has been. You look at what’s going on in the Mid East, Ukraine, South China seas, national security has to be a top priority. And I’m concerned that a government shutdown would clearly weaken our national security as does a continuing resolution. So I think I speak for the entire industry and probably our customers, we hope that we get a budget here in the next couple of weeks, so we can start having the money flow to the industrial base.
There’s been a lot of talk about the supplemental over $100 million, split between state and DoD and Ukraine and Israel and Taiwan and the south border. I think we feel confident there will be a supplemental, I don’t know if it will be 1 or 2 or somehow be partitioned, but I look at the supplemental as kind of playing into the near term. And I think when I look at our portfolio of products, literally products, not necessarily systems or platforms, we’ve been well positioned, specifically in Ukraine with a quick turn on the radios, night vision goggle, sites, sensors, cameras. So I look at the supplemental to kind of help us in the near-term. The midterm, I think, is relying more on a continued budget growth, the need to invest in technologies, advanced technologies for a peer or near-peer threats.
And we keep talking about that as part of our national defense strategy, but we keep getting distracted by these other conflicts. So I think that’s probably where I feel good about how we’ve shaped our portfolio specifically in the space arena, a lot of the missions that were normally conducted in the air domain, not all of them, but some of them have been moving to space. And I know people get tired of me saying it. I think this is the best example of our trusted disruptor strategy working. And at the date of the merger, L3Harris had zero satellites in orbit as a Prime. And as I look at our manifest in our backlog, we could very likely have 50, 5-0, 50, L3Harris Prime satellites and orbit in the next 3 to 5 years. So I think we’re well positioned there.
They tend to be more LEO satellites, 3-to-4-year useful lives, large constellations. So you can kind of see that as a potential ongoing annuity. In fact, we’re building state-of-the-art factory for the satellite integration. So clearly, I see upside there. Aerojet Rocketdyne, we talked about the munitions. We are in the rocket motor, solid rocket motor business supporting some great primes who ultimately integrate the missile. So I feel comfortable with our position there. Michelle talked about the radios. We made an acquisition earlier this year on tactical battle links from ViaSat. And we keep talking about the connectivity of this network, and it is happening, and it is going to happen. It’s hard to find the budgetary numbers, but these different domains, space, air, land, sea, they have to be able to connect across services, multi-domain, all those buzzwords we hear, but it’s critical and it’s happening, and someone has asked me best to try to explain with waveforms and all these different things that we’re doing with Link 16.
And I think the simplest way I could come up with is just categorizing it as Stealth communications. I think that’s kind of a simple way to look at it. And we have the footprint on these 20,000 platforms. So we’re upgrading, if you will, an existing network of connectivity and I’ll just say, making it stealth. So I think depending on the budget world events, you got to feel like mid-single-digit growth is not an unreasonable aspiration over the midterm. And that’s what we’re striving for. And as I mentioned to Kristine, I still think as a nation, we have to find a way to invest in the infrastructure to build the capacity of this industrial base given the surge of certain key products and areas. So that’s how I see it, Noah.
Operator: Next question is from the line of Scott Deuschle with Deutsche Bank.
Scott Deuschle: I have two quick questions, both for Michelle. The first is on what’s driving the difference between the $56 million of M&A expense add-backs on the P&L and the $215 million of add-backs for M&A on adjusted free cash flow. So that’s my first question. And then my second question is what would drive CS margins to the 26% range in the fourth quarter, which is I think what’s implied in the guide. Thanks.
Michelle Turner: Thanks for that Scott. I’m going to start with the margin question and kind of take a step back and address it starting with the enterprise margins because we really think about this as managing our portfolio. So we’re encouraged with the overall margin results within the quarter. This is our second consecutive quarter of sequential improving margins at 15% and this includes 2 months of Aerojet as part of our portfolio. And so, we’re most pleased because we’re starting to see the efforts of our actions related to our Performance First initiative, which you may remember is really grounded in meeting the commitments of our customers and shareholders, and it’s starting to pay dividends now in terms of margin improvement.
So I’ll walk through each of the segments because I think there’s a lot of good work that’s happening across the organization, plus it gives you a little bit of flavor as to how you should think about your models go forward. So I’ll start with our Space and Airborne Systems business. It delivered a record op profit in Q3 and 12.5% margins. And [indiscernible] and the SAS team have really been early adopters on our LHX NeXt initiative in terms of really leaning into maniacally managing cost and spend, but also looking at organizational construct to ensure that we are most effectively running our business. The SAS business also benefited from a couple of accretive contract mods that they were successful and being able to deliver on within the quarter.
And so when you look at Q4, there is a step-down as a result of those onetime accretive actions that occurred within Q3. From an Integrated Mission Systems business perspective, this business and along with John Rambo’s leadership and the IMS leadership team, saw sequential margin improvement of 180 basis points from Q2. And so you may remember this is where we’ve had the most acute EAC programmatic challenges in the first half of the year. And a lot of the work that John and his team are doing are starting to pay dividends now where we sit here in Q3. Now this will continue to be a bit of a lumpy part of our portfolio. But we expect that the worst is behind us in terms of overall programmatic challenges within IMS. Within our CS business, I’m getting specifically to your question, Scott, CS delivered consistent with our expectations within the quarter, along with consistent with Q1.
