L3Harris Technologies, Inc. (NYSE:LHX) Q4 2022 Earnings Call Transcript

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And so to your point, Scott, around using what we learned in 2022 and influencing our 2023 outlook, there’s really two key components. One was around the ISR missionization demand. And although we’re continuing to pursue a handful of those programs with budgets being up, we’re optimistic that we’re going to be able to land a contract. We thought it was prudent at this point to not put that into our guide and it would be upside.

Operator: Our next question is from the line of Michael Ciarmoli with Truist. Please proceed with your question.

Michael Ciarmoli: Hey good morning guys. Thanks for taking the questions. Maybe just to go back to Aerojet and thinking about these cost synergies, I know they had previously executed on a $240 million cost takeout program. It seems like all of those savings went to the customers. And I’m just thinking about maybe the lack of margin expansion we’ve seen there. There’s, obviously, been challenges in the rocket motor supply chain. I think Raytheon has been pretty outspoken there. Northrop is picking up, I think, the entire GMLRS motor production this year. What’s the status of their production system? Do you think you have to make any investments? Is that contemplated in the cost synergies? And I guess maybe your level of confidence in margin expansion at that entity?

Chris Kubasik: Yeah. Thank you, Michael. We do have confidence in margin expansion. I think when you look at the customer, or you look at the portfolio mix they have, it’s like everybody in the industry, it’s a combination of cost plus and fixed price. So I’m not sure it would all go back to the customer. It should obviously — they should be able to keep it on the fixed price. But that’s in the past. I’m looking going forward. Like any of these acquisitions, there are systems that are fragmented or maybe older technology just like when we put L3 and Harris together. Our IT organization knows how to convert these. I used my reference to ViaSat, the fact that those employees are already on our systems, and it hasn’t even been a month.

So most of the challenges, challenged program, and I know they’ve talked about it at length, seems to be at one facility. Like I said, we’ll have people down there in the next week or two. And everything has been contemplated in our business case. One of the benefits of being a large — part of a larger organization, again, this is an acquisition, not a merger, I just like to make a — an important distinction. We are buying them. They’re about one-tenth of our market cap, and this will be a quick integration relative to decisions that need to be made, and a lot of their systems will migrate on to ours, whether it’s benefits, payroll, et cetera. On the ERP manufacturing execution systems, they’ve been putting those in. We’re familiar with those systems, familiar with those systems, familiar with the technology.

And all that has been contemplated. With our scale, we have the capital. We have the IRAD. We prioritize it, and we have the ability to invest as they have been doing to make them world class.

Operator: Our next question is from the line of Seth Seifman with JPMorgan. Please proceed with your question.

Seth Seifman: Hey. Thanks very much, and good morning.

Chris Kubasik: Good morning.

Seth Seifman: I wonder, if you could talk a little bit about the kind of the medium-term outlook for the Communications business. We recently saw a management change there, and the €“ the details of the management change suggest that you’re looking for some really fresh and different thinking in a business that’s been kind of the core of the earnings for the company. And we’ve seen some good growth in the radio budgets in recent years. But when we look out to the middle of the decade and beyond, it doesn’t necessarily look as good. So, can you tell us about your medium-term thought process for communications?

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