Operator: Our next question is from the line of Sheila Kahyaoglu with Jefferies. Please proceed with your question.
Sheila Kahyaoglu: Good morning, Chris and Ken.
Christopher Kubasik: Hi, Sheila.
Sheila Kahyaoglu: Chris, One for you, please. You mentioned international mix within IMS. More broadly, what are you seeing in the international pipeline? And how are you thinking about the timing of that conversion? And just thinking about the overall 3% organic growth guidance for ’24, how does internal track relative to domestic, and what are the broader margin implications?
Christopher Kubasik: Yes. Thanks for the question. I mean, obviously, the broader margin implication is we tend to have higher margins in international than domestic, just like we do with commercial. So I see an increase — slight increase year-over-year. We’re kind of hanging around the 22%, 23% of our revenue comes from international, maybe a little uptick in ’24, ’25 and ’26. But every point helps. I think it comes down to this — the one that’s going to move the needle a little bit is going to be the supplementals. And we haven’t talked a whole lot about DC in the budget. But there is a supplemental out there for Ukraine, Taiwan and Israel put out last year for $110 billion. I think about $58 billion is targeted for the DoD.
It’s all tied up in politics as it relates to border security. But I think at the end of the day, we need to get these things passed because it’s really just backfilling the stockpile that we’ve already given into several of the countries I mentioned. So hopefully, we get that behind us, and that will solidify our growth opportunities in those regions specifically. So as I look at each of the segments. Aerojet, as you know, most of that goes through a couple of primes. So we actually don’t have any international revenue the way we disclose it for Aerojet, notwithstanding that several of these products get deployed from — but from our perspective, we just sell them to two or three primes and then they put them wherever they need to go. So we just call that domestic for what that’s worth.
IMS, I talked about WESCAM and bizjets, I see upside there. SAS, it’s really given the classified nature of so many things they do. We have an occasional space satellite, like I mentioned, in Japan. Some of the avionics stuff goes international as well. And then CS has the highest percentage of international mainly coming out of the tactical radio business. And when I look at what we’ve done in Ukraine and what’s needed in Europe and the Mid-East and the Far East, it’s looking rather positive. So I hope that help, Sheila.
Mark Kratz: Rob, we’re coming up on the hour, so maybe we’ll take our last question this morning.
Operator: Sure. Our last question comes from Robert Stallard with Vertical Research Partners. Please proceed with your question.
Robert Stallard: Thanks so much. Good morning.
Christopher Kubasik: Good morning.
Kenneth Bedingfield: Hey, Rob.
Robert Stallard: And welcome back, Ken.
Kenneth Bedingfield: Thank you.
Robert Stallard: Chris, probably a question for you. Your counterpart at Lockheed Martin, Jim Taiclet was kind of talking about structural problems in the defense industry with regard to pricing and contracting and whether that could change in the future. I was wondering if you have any issues lingering in the L3Harris portfolio that maybe fits that criteria. But on the flip side, do you see the opportunity to grow more sort of commercial terms contracts in the future?
Christopher Kubasik: Yes. Good question, Robert. Look, we’ve all been in this industry for decades, and it kind of goes in cycles where everybody thought fixed-price development programs was a good idea in the ’70s and ’80s, and then it migrates back to cost-plus and goes the other way. Just kind of have to understand where the customer is and figure out where they’re going. There’s lots of opportunities to interface with them. We’re we’ve been successful with our commercial business models that I’ve mentioned. I think there’s more that we can look at in that regard. I think more and more things are moving towards software, and I think it’s a new area. I think the DoD has to figure out how to buy software and we have to figure out how to sell software.
There have been some cases where it’s done. But again, that’s probably a different business model than your traditional cost-plus, truth in negotiation type regulations may not make sense. And I think that’s what a lot of the new entrants are also struggling with, to figure out how to get into those markets. So look, we all get to draft RFPs. We review them, we push back and sometimes you just have to no-bid. And one of these days, the entire industry is not going to bid on a fixed-price development contract and the DoD will change. But when you get one or two bids, they’re going to make the award, and we’re doing our best to balance the risk with the financial upside that we have, so probably a little more disciplined. But this has been an ongoing debate probably for decades, and we continue to engage with the customer, and I think they appreciate and understand where the industry is coming from.
