investor briefing - l3harris · investor briefing | 2 forward-looking statements statements in this...

INVESTOR BRIEFING

FISCAL 2018 Q4 RESULTS

REPORTED JULY 31, 2018

| 2Investor briefing

Forward-looking statements

Statements in this presentation 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 presentation include but are not limited to: earnings, revenue, operating margin, free cash flow, capital deployment, segment and other guidance for fiscal 2019; strategic focus for fiscal 2019; earnings, revenue, operating margin and free cash flow outlook for the medium term; potential contract opportunities and awards; the potential value and timing of contract awards; statements regarding the improving U.S. Government defense spending environment, capturing share, growth and expansion; and other statements regarding outlook or 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: the loss of the company’s relationship with the U.S. Government or a change or reduction in U.S. Government funding; potential changes in U.S. Government or customer priorities and requirements (including potential deferrals of awards, terminations, reductions of expenditures, changes to respond to the priorities of Congress and the Administration, budgetary constraints, debt ceiling implications, sequestration, and cost-cutting initiatives); a security breach, through cyber attack or otherwise, or other significant disruptions of the company’s IT networks and systems or those the company operates for customers; the level of returns on defined benefit plan assets and changes in interest rates; risks inherent with large long-term fixed-price contracts, particularly the ability to contain cost overruns; changes in estimates used in accounting for the company’s programs; financial and government and regulatory risks relating to international sales and operations; effects of any non-compliance with laws; the company’s ability to continue to develop new products that achieve market acceptance; the consequences of uncertain economic conditions and future geo-political events; strategic acquisitions and divestitures and the risks and uncertainties related thereto, including the company’s ability to manage and integrate acquired businesses and realize expected benefits and the potential disruption to relationships with employees, suppliers and customers, including the U.S. Government, and to the company’s business generally; performance of the company’s subcontractors and suppliers; potential claims related to infringement of intellectual property rights or environmental remediation or other contingencies, litigation and legal matters and the ultimate outcome thereof; risks inherent in developing new and complex technologies and/or that may not be covered adequately by insurance or indemnity; changes in the company’s effective tax rate; significant indebtedness and unfunded pension liability and potential downgrades in the company’s credit ratings; unforeseen environmental matters; natural disasters or other disruptions affecting the company’s operations; changes in future business or other market conditions that could cause business investments and/or recorded goodwill or other long-term assets to become impaired; the company’s ability to attract and retain key employees, maintain reasonable relationships with unionized employees and manage escalating costs of providing employee health care; or potential tax, indemnification and other liabilities and exposures related to Exelis’ spin-off of Vectrus, Inc. and Exelis’ spin-off from ITT Corporation. 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 presentation are made as of the date of this presentation, 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.


Leading technology innovator, solving

customers’ toughest mission-critical

challenges

• ~$6.2 billion in FY18 revenue

• 7,900 engineers and scientists…45% of total

• Customers in more than 100 countries

Space &

Intelligence

Systems

Communication

Systems

Critical

Networks

Electronic

Systems

Harris Corporation overview

Space and

Intelligence Systems

Electronic Systems

Communication

Systems

$1.9B $1.9B

$2.4B


Segment descriptions

Tactical Communications: radio

communications and networking for U.S. and

international defense

Public Safety: communication systems for

public safety networks

Night Vision: goggles and soldier systems

for U.S. and international customers

Classified: payloads, sensors, and full-

mission solutions for space, air and ground

Civil: end-to-end weather solutions from

remote sensing to ground processing, GPS

Commercial: space antennas and geospatial

solutions

Electronic Warfare: airborne and maritime

platforms

Avionics: data links, antennas and

carriage/release

C4ISR: signals intelligence products,

SATCOM, integrated battle management

Mission Networks: communications and

networking solutions for FAA and others

1,753 1,903

-

500

1,000

1,500

2,000

2,500

3,000

FY17 FY18 FY19 Guid.*

0

500

1000

1500

2000

2500

3000

FY17 FY18 FY19 Guid.

0

500

1000

1500

2000

2500

3000


2,251

20.6% 18.6%

($million)

Communication

Systems $1.9B

Space and Intelligence

Systems $1.9B

Electronic

Systems $2.4B

2,3731,902

16.4% 17.0 – 18.0%

up 4.0-5.0%

29.9%29.5 – 30.5%

up 8.0-10.0%

For non-GAAP reconciliations reference quarterly earnings and related materials on the Harris investor relations website.

*Guidance updated July 31, 2018, reflects adoption of new revenue recognition standard (ASC 606) – refer to 4Q18 quarterly earnings and related materials on the investor relations website.

Revenue

non-GAAP

operating

margin

30.0%

1,921

17.5%18.0 – 19.0%

up 7.0-8.0%

* *


Medium

Term

FY17 &

Prior

FY18

FY19

• Grew revenue in all three segments…CS up 9%, ES up 5%, SIS up 1%

• Delivered best-in-class margins of 19.2%*…18% EPS* growth

• Achieved record $915M** in adjusted FCF…~60% returned to shareholders

• Accelerating revenue growth

• CS/ES segment and total company margin expansion…double-digit EPS growth

• Sustained FCF growth…dividends, share buy-back, M&A

• Re-shaped portfolio “high growth and high margin”

• Completed Exelis integration…exited FY17 with $145M in run-rate savings

• Invested in technology for future growth…R&D spend >5% of sales

• Accelerate revenue growth…CS up 8–10%; ES up 7–8%; SIS up 4–5%

• Expand margins…18-21% EPS growth

• Deliver FCF of ≥$1B…shareholder friendly deployment

*For non-GAAP reconciliations reference other quarterly earnings materials and the Harris investor relations website.

**FCF (free cash flow) = operating cash flow less capital expenditures; adjusted FCF excludes 3Q18 $300M voluntary pension contribution.

Executing on multi-year strategy


3.4%3.0% 2.9%

2.5% 2.4%

1.7%

0.2%

HRS

~5%

174

589 300

650

585

555

FY16 FY17 FY18

Successfully executed

Exelis integration

Proven track record…

2

Invested in differentiated technology

to position for continued growth 3

Reshaped, focus on

high growth, high margin portfolio1

($millions)

Original plan Actual

100 - 120

145FY17 exit rate

Peer

HRS

Broadcast

Comms (BCD)

Commercial

Healthcare

Cyber Integrated

Solutions (CIS)

Cyber Integrated

Solutions (CIS)

Aerostructures

Services

CapRock

Derisked the balance sheet through

debt paydown and pre-funded pension4

Exelis synergy savings

FY12 FY17

Synergies higher

than original plan…

…and a full year

ahead of schedule

($million)

Debt payments

Pension funding

Net debt/ adj. EBITDA

Pension %

funded 66%

80%

88%Industry leading 5% R&D Investment

2.9x 2.4x2.5x


…inflecting to top-line growth across all segments

5,932 5,900

6,182

4,024 4,150

5,212

FY16 FY17 FY18

($millions)FY18 Revenue up 5%

CS

ES

SIS

up 9%

up 1%

up 5%

• Tactical up 11%

• DoD up 35% on strong readiness demand and start of

modernization ramp

• International stabilizing

• Night Vision up double digits

• B:B of 1.3

• Strong growth on long-term platforms (F-35, F/A-18, F-16), up >20%

• Double-digit growth in weapon release systems

• International expansion…U.K. robotics and UAE battle management

• B:B of 1.3

• Strong classified growth

• Strengthened position in exquisite systems

• Increased share of wallet with existing customers

• Expanded addressable market – small sats

• Headwinds in Environmental systems

• B:B of 1.0

Revenue & Backlog

1.0 1.0 1.2B:B

Revenue

Funded

Backlog(year end)


Record EPS and free cash flow

*Non-GAAP EPS excludes adjustments incurred in the fiscal year. For non-GAAP reconciliations reference quarterly earnings and the Harris investor relations website.

**FCF excludes 3Q18 $300M and 4Q17 $400M voluntary pension contributions.

713

772

850

915

FY15 FY16 FY17 FY18

($millions)

• Returned ~$2B or 65% of FCF to shareholders over the

past four years

• Structural improvement in working capital performance

Generated strong free cash flow**

4.58

5.14

5.53

6.50

FY15 FY16 FY17 FY18

Continued EPS* growth

• Best-in-class operating margin of 19.2% in FY18

• Harris culture of operational excellence (HBX)

12%

CAGR 9%

CAGR

($)


($billion)

U.S. Government defense spending environment improving…

528 530

496 496 496522 524

601617

159

115

88 8559

5982

65

69

11 12 13 14 15 16 17 18 19

DoD budget

Government Fiscal Year (GFY)

OCO

Base

OCO

10% budget growth for 2018…additional

step up in GFY19

• Focus on warfighting, readiness and

modernization

Positive outcome for Harris with major

programs funded

• Tactical radios budget ~$6B over next 5 yrs

• 20 F-35 and 10 F/A-18 plus-ups in 18 omnibus

• 6-7% growth in classified budgets

International grant funding 2x of GFY16

$85B gap between investment account

budgets and outlays over the past three

years… driving sustainable growth over

medium-term

NDAA

686


…accelerating growth in FY19…

Accelerate revenue growth…all 3 segments

1

2

3

Drive flawless execution while expanding margins through operational excellence

Sustain cash flow with shareholder friendly capital deployment

CS ES S&IS

up 8.0 – 10.0% up 4.0 – 5.0%up 7.0 – 8.0%

up 6.0 – 8.0%

CS ES S&IS

19.3 - 19.7%

≥ $1B

29.5 – 30.5% 17.0 – 18.0%18.0 – 19.0%

FY19 EPS guidance of $7.65 to $7.85

Total Company Margin*

Free cash flow

Total company revenue

*Total company represents EBIT margin = earnings before interest and taxes as a percent of revenue. For non-GAAP reconciliations reference other quarterly materials and the Harris investor relations website. Segments

represent operating margin.

Guidance updated July 31, 2018, reflects adoption of new revenue recognition standard (ASC 606) – refer to 4Q18 quarterly earnings and related materials on the investor relations website.


…and the medium-term

Space & Intelligence Systems

Electronic Systems

Communication Systems

Business FY18

Tactical Comm.

DoD

Public Safety

Night Vision

Mission Networks

C4ISR/Battle Mgmt.

Electronic Warfare

Avionics

Classified

Civil

Commercial

up 9%

$1.9B

$2.4B

$1.9B

up 1%

up 5%

International

Medium term drivers

Medium term

up high-single digit

up high-single digit

up mid-single digit

Margin

~30.0%

~18.5%

~17.5%

• Continued classified budget

support; expansion into

adjacencies

• E. Europe stability; ME recovery;

installed-base modernizations

• Long-term platform upgrades -

international and domestic

• Budget pressures subside; new

customers; GPS IIIF

• UAE battle mgmt system roll-

out; regional expansion

• F-35 ramp and new content wins;

new and long-term platforms

• Product launches; new

customers

• Army, SOCOM, Marines

modernization programs to ramp

• Army modernization;

leverage int’l tactical channel

• Stable FAA budget; international

air traffic mgmt demand

• Value added services; space

recapitalization


Overview of Communication Systems

Industry trends supporting

long-term growth

Segment financials and key customers

U.S. Department of Defense

International governments

Australia Poland Iraq MexicoSaudi Arabia

Air Force NavyArmy Marines SOCOM

0

500

1000

1500

2000

2500

3000


($million)

29.9% 29.5 – 30.5%

1,753up 8.0-10.0%

Revenue

non-GAAP

operating

margin

30.0%

1,903

Tactical, International

Tactical, DoD

Public Safety

Night Vision

Global security issues; increased focus on

warfighter readiness supported by strong

budget growth

Transforming voice-centric legacy equipment

with information-driven, fully-connected

air/ground networks

Converging ISR and communications into a

single tactical device

U.S. and international modernizations

underway

• Multi-billion dollar U.S. DoD modernization

• International modernizations

*


*Guidance updated July 31, 2018, reflects adoption of ASC 606 – refer to 4Q18 quarterly earnings and related materials on the investor relations website.


HRS tactical grew into world leader

0.10.2

0.20.3

0.5

0.9

1.11.0

1.21.1

0.8

0.60.5

0.4 0.4 0.4

0.5

0.20.2

0.2

0.2

0.3

0.3

0.40.7

0.40.7

0.8

0.70.8

0.9 0.90.8

0.8

0.30.3

0.4

0.5

0.8

1.2

1.5

1.7

1.6

1.8

1.6

1.31.3 1.3

1.31.2

1.4

FY02 FY03 FY04 FY05 FY06 FY07 FY08 FY09 FY10 FY11 FY12 FY13 FY14 FY15 FY16 FY17 FY18

Domestic

International

Historical growth in HRS

tactical……led to HRS as #1 provider in

DoD and international

Harris

39%All others

Source: 10K and company estimates.

($billion)

$3.0B CY2017 ground tactical segment

Harris

40% All others


#1 position driven by commercial model

Cost excellence

• Product cost reduction while increasing

capabilities

• Footprint consolidation into one world-class

manufacturing facility

• Global supply chain

Continuous innovation

• Investment of internal R&D resources

• Broadest, combat proven product portfolio

• Unmatched portfolio of waveforms

Global customer intimacy

• Anticipating and driving requirements

• Extensive distribution network

• Large installed base

Commercial business model…

1 2

3

1

2

3

… enabled competitive edge


Continuous innovation and platform strategy driving differentiation

• Market-driven innovation through internal R&D provides differentiation

• Unmatched portfolio of waveforms with strong software development expertise

• Platform investing results in core technology shared across multiple products –U.S. and international

• Spiral development reduces time-to-market, provides up-sell technology refresh, reduce risk of obsolescence


332

569

666

1,160

1,000

1,143

1,363 1,351

'16 '17 '18 '19 '20 '21 '22 '23

NDAA

963

GFY18 PBR

DoD Tactical Radio-related budget increased to

~$6B over the next 5 years…

($million)

Army and USMC

modernization

driving growth

Army

Air Force

Marines/Navy

SOCOM

GFY19 President’s Budget Request

GFY

…with HRS awarded positions on all major U.S.

tactical radio contracts

Executing on well-funded DoD modernizations...

Army HMS Manpack2-channel multiband manpack

$12.7B

IDIQ

Multi-vendor

Army Rifleman Radio1-channel, 2-channel Leader radio

$3.9B

IDIQ

Multi-vendor

Navy and USMC tactical radiosHF and next-gen 2-channel radios

$765M

IDIQ

Single-award

SOCOM Tactical Comms2-channel multiband manpack

$255M

IDIQ

Single-award

SOCOM Tactical Comms (STC)2-channel multiband handheld

$390M

IDIQ

Single-award

COTS

* SOCOM = GFY20-23 prior administration’s budget request

716 712

867

964

641


…and maintaining international leadership

Harris’ large and growing installed base in over 100 countries

will continue to add stable and repeatable revenue

* Excludes trade restricted countries and the U.S.

HRS Share*

(Thousands of tactical radios)

Growth

Refresh

Growth

Refresh

2008 2018

Growth

Refresh

Future

Narrow

band

Wide

band

Penetrate new customer

segments, increase

share… Special Forces to

Army, Air Force

Expand footprint… Asia,

Europe

Grow into systems…

Australia, U.K

Leverage incumbency

(continuous upgrade and

refresh of growing installed

base)

Harris’ growing share of the

international installed base…

Growth strategy…increasing baseload

revenue over time

Revenue Mix

2008 2018

Falcon 1

Falcon 3

Falcon 2

345

SINCGARS

135

21% 31%


Expand into near adjacencies

Source: Company estimates.

Airborne radios and ISR

Manned

Unmanned

ARC-201

SINCGARS

Small Tactical

RadioSmall Secure

Data Link

Embedded

Modular Radio

Integrated network systems

• Target key standardization programs by

leveraging incumbency, customer intimacy

and strength of installed base

• Add/integrate command and control (C2) and

network mgmt. capabilities into ground

tactical network

• Differentiate solution by combining systems

engineering expertise with market leading

tactical radio networking technologies

• Growing demand for manned and

unmanned aerial platforms

• Leverage position on legacy Exelis ARC-201

platform

• Interoperability with Harris ground tactical

installed base

• Manufacturing scale and commonality with

ground tactical radio technology platforms

Ground

Network

Systems

Airborne

Tactical radio

segments

Growing addressable

segment by 2x

Raven


Overview of Electronic Systems

Electronic warfare capability in “near-peer” countries approaching U.S. – driving modernizations and multi-domain capabilities

DoD’s affordability initiative driving a shift towardslow-cost solutions and shorter technology cycles

Innovating to improve SWaP and to support converging multi-mission capabilities

Continuing F-35 ramp and desire to add new capabilities opening competitive window

FAA budget solid, supporting current NextGen requirements and future scope expansion

($million)

Aerospace and Defense Primes

International governments

EgyptAustralia TurkeyIraq UAE

U.S. Government customers

NavyMarinesArmyAir Force F.B.I. FAA


long-term growth


• 80% fixed price

• 68% prime

0

500

1000

1500

2000

2500

3000


2,251

20.6%18.6%

2,373

Revenue

non-GAAP

operating

margin

18.0 – 19.0%

up 7.0-8.0%

*

Mission

Networks

Electronic

WarfareC4ISR/Battle Mgmt

Avionics




B-52ALQ-172

F/A-18E/FALQ-214 IDECM

CV-22ALQ-211

50-year history; strong incumbency on platforms

with long modernization tails…

…while investing in future EW systems for

variety of platforms

Platforms

= opportunity $M

ANALOG

DIGITAL

Hardware DefinedStove-PipedStandalone

Single MissionStatic Techniques

Software DefinedModular

NetworkedMulti-Function

Adaptive

Advanced Integrated Defensive

Electronic Warfare Suite (F-16)

Integrated Defensive Electronic

Countermeasures (F/A-18)

Software Defined EW

Multi-Function Array

Disruptor SRx™

Custom legacy systems

Software-defined open EW

Small size, weight, power systems

Fixed

Wing

Rotary

F-16AN/ALQ-211 AIDEWS

MH-47ALQ-211

MH-60ALQ-211

~$500 combined

Leverage electronic warfare position on long term platforms and develop next-generation technology

Gen 5

refresh F-35B-2F-22

~$1,000

~$2,500~$1,500

Rotary

Fixed

Wing


Solid position on F/A-18 platform

Navy F/A-18 service life extension program –

production into 2020s; service until 2040s

International partner expansion includes Australia,

Kuwait, Canada

Recently awarded upgrade for Digital Targeting

Processor system – a key element of Block 3

upgrade plans

Pursuing additional Block 3 upgrade opportunities

Kuwait

CanadaAustralia

USA

Top F/A-18 Opportunities

Fiber Channel Network Switch

(FCNS)

Distributed Targeting Processor (DTP) & Mass

Storage Unit (MSU)

ALQ-99 UEU Pod(Growler Only)

Multifunction InformationDistribution System (MIDS)Low Volume Terminal (LVT) 1

Digital Map Computer(DMC) Digital VideoMap Computer (DVMC)

Digital Memory Device (DMD)

Conformal Broadband Antenna Q-134

Active ElectronicallyScanned Array (AESA)

Fiber Channel Switch

Smart Bomb Rack UnitBRU-55

Integrated Defensive Electronic Countermeasures

(IDECM) ALQ-214

Revenue per shipset ~$3M


Strong position on F-35…

Accelerate growth in Avionics

…and global leadership in carriage

and release systems

PIC

Infrastructure

Components PIC

Multifunction

Advanced Data

Link (MADL)

Carriage and

Release weapon

racks

PIC

Panoramic Cockpit

Display, Advanced

Memory Sys

Smart Weapon

Racks

PIC

Classified

PIC

Open Systems

SONOBUOY LAUNCHING SYSTEM

F/A-18 Launching system for SDBII…

UNIVERSAL ARMAMENT

INTERFACE

P-8

KF-X SINGLE STATION RACKS

AND

SMART MULTIPLE CARRIAGE

Program is at the onset of production

ramp…executing against multi-year block

buy and expanding content per shipset

F-16SMART MULTIPLE CARRIAGE


Increase ELTS scope and leverage model into other Gulf Cooperation Council countries

ELTS = Emirates Command & Control System (ECCS) Land Tactical System

ELTS Initial Operations

Initial deployment of battle

management systems

(1 brigade)

ELTS Full Operations

Full deployment of battle

management systems

(4 brigades)

ELTS Sustainment

Maintenance of battle

management systems

EW Ops Center

Provide signals intelligence

reports to UAE armed

forces commands

ELTS Joint Systems

Emirates command and control

system joint system for forces

interoperability

ELTS Radios

Opportunity for Communication

Systems to provide Harris

radio solution

ELTS

IOC

$189M

ELTS

IOC

$189M

~$900M

ELTS

FOC

ELTS

O&M

EW

Ops

Center

EJS

Radios

Battle management

systems integration

Moving from voice to

data-centric operations

Providing situational

awareness and C2 software

ELTS Scope

Expanding into C4ISR integrated battle management systems for land forces

(300 Vehicles)

Completing in

Q1FY19


Leverage success in U.S. to drive international expansion

Positioned on FAA NextGen Growth and expansion

Continued success with $2.9B in wins on NextGen programs

FAA Telecommunications

Infrastructure (FTI)

Early FAA successes led to FTI cornerstone win – July 2002

20-year, $5B

Nationwide air traffic telecommunications network providing critical voice, data, video

Harris owned and operated

Excellent performance

99.999% network availability

Connects 4,400+ FAA, DoD facilities

25,000+ services supporting 50,000+ users

2003 2008 2015

A Model Public-Private Partnership

Bandwidth

Up 5x

FAA Telecom Spend

Down 50%

Comms-Related

Air Traffic Delays

Down 99%

ADS-B: largest air traffic control surveillance network in world; aircraft broadcast position to ground

DCISSWIM CSS-Wx

Harris owned and operated

650+ radio stations

Covering 4 million miles2 of U.S. airspace with 1,100 surveillance sensors

Leveraging 25-year trusted FAA partnership to grow air traffic management franchise

Leveraging aviation grade surveillance solution for emerging UAS market

Positioned to provide real-time Detect-and-Avoid network

Early partnerships with FAA – supporting all 7 FAA UAS test sites, including feasibility studies


Overview of Space and Intelligence Systems

• 28% fixed price

• 72% prime

• Global instability…new threats, increased security issues

• Space transition from safe-haven to theater-of-war…need for dis-aggregated solutions

• Strong intelligence budget support... Merging of DoD and IC budget line items

• U.S. Government adopting commercial models to lower costs and provide flexibility

• Integrated solutions focused on analyticsU.S. Government customers

Commercial customers

NOAA NRO NSADIA NGAAir Force


long-term growth


1,902 1,921

-

500

1,000

1,500

2,000

2,500

3,000


16.4%17.0 – 18.0%

Up 4.0-5.0%

Revenue

non-GAAP

operating

margin

17.5%

*

Classified

Civil

Commercial

($million)




Capitalize on strong demand for Harris broad solutions in a robust classified environment

7076

80 79 76

68 69 6771 73

79 81

08 09 10 11 12 13 14 15 16 17 18 19

($billions)

Increasing threats driving higher

intelligence budgets• SENSOR program - supporting missile warning,

defense, and space surveillance missions

• 50-year trusted partner with Intelligence Community

• Developing most advanced sensor technology… with data processing and analytics

• Moving from component provider to sub-systems to full mission solutions…new small-sats franchise

Focus and execute on high-value programs…

…and strengthen position in exquisite space

systems

Intelligence

agencies

DoD/Military

GFY


Leveraging capabilities from exquisite payload provider to small sat end-to-end solutions

Deployable mesh reflectors

Telescopes and other space

electronics

Specialized manufacturing

processes and

infrastructure for mission-

enabling technologies

RF Payload, Mission Mgmt.

Payload Command & Control

Won contract for 81 hosted

payloads; expanded to 230

by selling excess SWaP

Expanded launch options

shift responsive market to

SmallSats… Harris

recognized shift occurring

1960’s

1970’s

2012

Specialty sensors and

antenna/RF subsystems

Telescopes with supporting

electronics

Penetration in ISR, Weather,

and Communications

missions

Fully integrated modular RF

SmallSat and supporting

ground station

Two recent pathfinder

wins…new classified award

>$100M

Launching multi-purpose

small sat: Harris SAT 1

Today

Exquisite

Technology Enablers

Exquisite

Payloads & Subsystems

Hosted Payloads

SmallSat End-to-End

Solutions


Execute on civil programs and position for future opportunities

Korean advanced meteorological imager

Providing world-class solutions to

Environmental customers…

GOES-R program

…and a 40+ year history providing precision

timing solutions on every GPS satellite

Sensors to collect weather,

climate and ocean

information

Enterprise-wide backbone

to ingest, process,

distribute weather data

Harris technologies over the years

• Interplex waveform generation – GPS II

• Advanced timekeeping – GPS II-M

• Digital waveform generation – GPS II-F

• Modular Mission Data Unit (MDU) – GPS III

Global Positioning System (GPS) III

Developed and demonstrated a fully digital

solution for GPS III vehicles 11-32 re-compete

Fully Integrated GPS

Payload

Next-Gen GPS Operational

Control System (OCX - ground)

Provides 4x data, 4x resolution to improve

weather forecasting

1 of multiple international weather imagers

Maintain global position while expanding into new

customer base with Air Force weather franchise

http://www.google.com/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0CAcQjRxqFQoTCP2XnJLAtccCFQElHgodgwQFeA&url=http://www.milsatmagazine.com/story.php?number=604208157&ei=BabUVb2BFYHKeIOJlMAH&bvm=bv.99804247,d.dmo&psig=AFQjCNFfjxUCq0HL_zkaIGQWe568D9tv0w&ust=1440085878472915


“Best-in-class” margins…room for further expansion

*Non-GAAP operating margin excludes adjustments incurred in the fiscal year. For non-GAAP reconciliations reference quarterly earnings and the Harris investor relations website

…driven by focus on operational

excellence and flawless program execution

• Adoption of Harris Business Excellence (HBX)

• Culture of continuous improvement

• Improved program execution

• Increased factory and supply chain productivity

• Exelis integration and synergy savings

18.7%

19.2% 19.2%

19.3% - 19.7%

FY16 FY17 FY18 FY19 Guide MediumTerm

Medium term initiatives

• Building the foundation for digital transformation

• Dev Ops implementation to accelerate innovation

while increasing productivity

• Continued supply chain momentum to improve quality

and reduce product cost

Operating

margin*

Proven track record of margin

improvement…

FY18 and prior initiatives


Driving digital transformation

28

17

12

3

24

10

5 3

Baseline FY18 FY19 FY21

Standardizing ERP systems & transitioning

to cloud based infrastructure…

…building the platform for digital

transformation

0 10%

30%

100%

Baseline FY18 FY19 FY21

Cloud Migration Roadmap

ERP System Roadmap Intelligent Factory

Connected Supply Chain

Digitized payables and billing

processes

Automated asset tracking

Robotic Process Automation

Digital Engineering

Connect current standalone

manufacturing elements

Increased capacity

Reduced downtime

(select examples)

Subcontracts digitization

Integrated buyer dashboard

Cybersecurity risk management

Model-based systems engineering

Product Lifecycle Management

DevOps adoption

# ERP

systems

# data

centers


DevOps adoption driving accelerated and cost effective innovation

Design

Tools

Code Integration & TestReq. &

Archit.

1 2 3 4 5 6

years

Tools System

Test

DeploymentWaterfall

Timeline

DevOps

Development

Timeline

Req. &

Archit.

Software development improvements increasing productivity and time to market

64%

Australia Land 200

Tactical Network

32%

20%

Decreased integration & test defect escapes550 defects 350 defects

Decreased total defect rework labor 4.4K hrs 3K hrs

Decreased project management hours2.5 FTE 2 FTE

98%

37X

12X

Reduced build time per capability211 minutes 3.75 minutes

Faster capability release time2.75 days < 3 hours

Increased release frequency2-3 per year 2-3 per month


FY18: Strong execution against strategic priorities

Grow revenue across all 3 segments1

*For non-GAAP reconciliations, reference other quarterly earnings materials and the Harris investor relations website. **Adjusted FCF(free cash flow) = operating cash flow excluding 3Q18

$300M voluntary pension contribution, less capital expenditures.

✓

3

2

Drive flawless execution while

maintaining margins through

operational excellence

Maximize cash flow with

balanced capital deployment

✓

✓

Revenue up 9%...Tactical up 11%, Night Vision up double

digits

• DoD up 35% and International down <1%

• Strong Tactical order momentum from readiness and

modernization programs and expansion into adjacencies

• Tactical backlog up 82%

Revenue up 5%...first half ~flat, second half up 9%

• Long-term platforms (F-35, F/A-18, F-16) up >20%...orders >$1B

• International expansion…U.K. robotics, UAE and FTI India

• Backlog up 30%, $17B pipeline, $4.5B proposals outstanding

Revenue up 1%...Classified growth offset by Environmental

headwinds

• Classified orders up double digits…hosted payloads leadership,

increased share of wallet with existing customers & expanded

addressable market

• Orders growth of 6%, B:B >1.0, $14B pipeline

• Communication Systems

− Night Vision: improvement in yield and OTD; strong win rate

• Electronic Systems

− F-35 on-time delivery >99.95%...higher content

− F/A-18 100% OTD over 20 yrs, cycle time down 10%

• Space & Intelligence Systems

− SENSOR on-time delivery 90% (from 35%)

− GPSIIIF - developed fully digital payload

Communication Systems

Electronic Systems

Space & Intelligence Systems

• Record adjusted FCF of $915M**…116%* of NI

• Returned ~60% to shareholders…$272M

repurchases & $272M dividends…double-digit

10-yr CAGR


Strong 4Q18 and FY18 financial results

All financials are as reported per the 4Q18 earnings release

*For non-GAAP reconciliations, reference other quarterly earnings materials and the Harris investor relations website.

**Adjusted operating cash flow excludes 3Q18 $300M and 4Q17 $400M voluntary pension contributions. Adjusted FCF (free cash flow) = adjusted operating cash flow less capital expenditures.


FY19 guidance* summary

By Segment

CS

ES

SIS

Revenue

up 8.0 – 10.0%

up 4.0 – 5.0%

up 7.0 – 8.0%

Margin**

29.5 – 30.5%

17.0 – 18.0%

18.0 – 19.0%

Total Harris

Revenue

EPS

$7.65 – $7.85

Margin**

19.3 – 19.7%

FCF**

up 6.0 – 8.0%

≥ $1B

*Reflects adoption of new revenue recognition standard (ASC 606)

**Harris represents EBIT margin = earnings before interest and taxes as a percent of revenue. For non-GAAP reconciliations reference other quarterly materials and the Harris investor relations

website. Segments represent operating margin.

investor briefing - l3harris · investor briefing | 2 forward-looking statements statements in this...

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