10-QPeriod: Q1 FY2021

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q1 Ended Apr 3, 2020

Filed May 7, 2020For Securities:LHX

Summary

L3Harris Technologies reported strong revenue growth of 168% for the quarter ended April 3, 2020, compared to the prior year period, largely driven by the inclusion of L3 operations following the merger. However, net income from continuing operations declined by 20% year-over-year due to a significant goodwill impairment charge of $296 million related to the Commercial Aviation Solutions segment, exacerbated by the COVID-19 pandemic's impact on the commercial aviation market. The company is actively managing its portfolio through planned divestitures of several businesses, including the airport security and automation business, which was completed post-quarter end. Despite these challenges, L3Harris maintained a strong liquidity position and continued its commitment to returning capital to shareholders through dividends and share repurchases, while also managing its debt structure effectively. The company highlighted the impact of COVID-19 on its commercial aviation and public safety sectors, noting potential revenue declines in these areas. Conversely, its significant exposure to the U.S. government, a critical infrastructure sector, is expected to provide a degree of stability. L3Harris is focused on operational efficiency, integration savings, and navigating the uncertain economic environment, signaling a proactive approach to managing current market conditions.

Financial Highlights

53 data points
Beta

Revenue

$4.63B

28.7% Gross Margin

Net Income

$194.00M

4.2% Net Margin

EPS (Diluted)

$0.99

Total Assets

$38.10B

Cash & Equivalents

$663.00M

Free Cash Flow

$485.00M

Financial Statements
Beta
Revenue$4.63B
Cost of Revenue$3.30B
Gross Profit$1.33B
SG&A Expenses$812.00M
Operating Income$218.00M
Interest Expense$68.00M
Net Income$194.00M
EPS (Basic)$1.00
EPS (Diluted)$0.99
Shares Outstanding (Basic)217.30M
Shares Outstanding (Diluted)219.30M

Key Highlights

  • 1Revenue surged by 168% to $4.6 billion, primarily due to the full inclusion of L3 operations post-merger.
  • 2Net income from continuing operations decreased by 20% to $195 million year-over-year.
  • 3A substantial $296 million non-cash goodwill impairment charge was recorded for the Commercial Aviation Solutions segment, driven by the COVID-19 impact.
  • 4The company is progressing with portfolio adjustments, including planned divestitures of several businesses.
  • 5Liquidity remains strong with $663 million in cash and cash equivalents and an undrawn $2 billion revolving credit facility.
  • 6L3Harris returned capital to shareholders via $700 million in share repurchases and $183 million in dividends during the quarter.

Frequently Asked Questions

The primary driver of the 168% revenue increase was the full inclusion of L3 operations in the consolidated financial results following the L3Harris merger. This significantly expanded the company's revenue base compared to the prior year period, which only reflected Harris's standalone operations.

The decline in net income from continuing operations was primarily due to a significant non-cash goodwill impairment charge of $296 million recorded for the Commercial Aviation Solutions segment. This charge was necessitated by the adverse impact of the COVID-19 pandemic on the commercial aviation market. Additional factors included increased amortization of acquisition-related intangibles and higher interest expense.

L3Harris is focusing on employee safety, supply chain risk mitigation, and maintaining operations, especially for its U.S. government contracts. However, the company acknowledges potential adverse impacts on its commercial aviation and public safety businesses due to reduced demand and market disruptions. The company is also actively managing its portfolio through divestitures of non-core assets.

L3Harris maintains a strong liquidity position with substantial cash reserves and an available credit facility. While the company anticipates challenges in its commercial aviation and public safety segments due to COVID-19, its significant U.S. government business provides a degree of stability. The company expects its existing cash, operating cash flows, and credit facilities to be sufficient for its foreseeable needs, including capital expenditures, dividends, and debt obligations.