01—Abstract
Summary
Summary of the 10-Q filed April 28, 2023. Cited figures are marked; the original filing is the authoritative source.
L3Harris Technologies, Inc. reported its first quarter 2023 results, demonstrating solid revenue growth driven by its Communication Systems (CS), Space & Airborne Systems (SAS), and Integrated Mission Systems (IMS) segments.
Total revenue increased by 9% year-over-year to $4.47 billiona. While revenue showed an upward trend, net income experienced a decline of 29% to $337 million, or $1.76 per diluted share. This decrease in profitability was primarily attributed to a net change in estimate at completion (EAC) adjustments, higher expenses related to recent acquisitions and integrations, and an increase in interest expense due to new debt financing.
The company successfully completed the acquisition of Viasat's Tactical Data Link (TDL) product line for $1.958 billionb, which is expected to enhance its networking capabilities. L3Harris also has a pending acquisition of Aerojet Rocketdyne Holdings, Inc. (AJRD) for approximately $4.7 billion, which is proceeding through regulatory review. Despite a decrease in net income, the company generated $350 million in operating cash flow and ended the quarter with $545 million in cash and cash equivalents, underscoring its ability to manage liquidity amidst significant strategic investments and debt.
02—Key points
Key Highlights
- Revenue increased by 9% to $4.47 billion, driven by growth across all segments, particularly Communications Systems (CS) and Space & Airborne Systems (SAS).
- Net income decreased by 29% to $337 million ($1.76 per diluted share) primarily due to unfavorable estimate at completion (EAC) adjustments and increased acquisition-related expenses.
- The company completed the acquisition of Viasat's Tactical Data Link (TDL) product line for $1.958 billion, enhancing its networking capabilities and integrating into the CS segment.
- L3Harris continues to advance its pending acquisition of Aerojet Rocketdyne Holdings, Inc. (AJRD) for $4.7 billion, which is undergoing regulatory review.
- Operating cash flow was $350 million, a significant increase from the prior year, despite a higher net cash used in investing activities driven by the TDL acquisition.
- The company repurchased approximately $396 million of its common stock during the quarter and increased its quarterly dividend to $1.14 per share, signaling confidence in its financial position.
- Long-term debt increased significantly due to borrowings related to the TDL acquisition, with total debt, net, reaching $9.0 billion.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q1 FY2024, L3HARRIS Technologies, Inc. kept $0.08.
- Revenue$4.47B100.0%
- Cost of revenue−$3.31B73.9%
- Gross profit$1.17B26.1%
- Operating costs−$773.0M17.3%
- Operating income$393.0M8.8%
- Interest, other & tax−$56.0M1.3%
- Net income$337.0M7.5%
04—Financials
Financial Highlights
Figures from 10-QQ1 FY2024filed April 28, 2023Financial Statements
Q1 FY2024 against Q1 FY2023
| Line item | Q1 FY2024Q1 FY2023 | Change |
|---|---|---|
| Revenue | $4.47B$4.10B | +9.0% |
| Cost of Revenue | $3.31B$2.86B | +15.6% |
| Gross Profit | $1.17B$1.24B | −6.2% |
| SG&A Expenses | $773.00M$745.00M | +3.8% |
| Operating Income | $393.00M$475.00M | −17.3% |
| Net Income | $337.00M$475.00M | −29.1% |
| EPS (Basic) | $1.77$2.46 | −28.0% |
| EPS (Diluted) | $1.76$2.44 | −27.9% |
| Shares Outstanding (Basic) | 190.20M193.20M | −1.6% |
| Shares Outstanding (Diluted) | 191.20M195.10M | −2.0% |
05—Questions
Frequently Asked Questions
What were the primary drivers for the revenue increase in the first quarter of 2023?
The revenue increase of 9% to $4.47 billion was primarily driven by higher revenues across all segments, including Communications Systems (CS) with a 21% increase, Space & Airborne Systems (SAS) with a 9% increase, and Integrated Mission Systems (IMS) with a 2% increase. The CS segment benefited significantly from the recent acquisition of Viasat's TDL product line and improved electronic component availability, while SAS saw growth from ramp-ups in new programs and increased production.
Why did L3Harris's net income decrease despite the revenue growth?
Net income declined by 29% to $337 million primarily due to a net unfavorable change in Estimate at Completion (EAC) adjustments, higher acquisition-related transaction and integration expenses totaling $40 million, and increased interest expense of $34 million on new debt financing, specifically the Term Loan 2025 used for the TDL acquisition. These factors outweighed the revenue growth and impacted profitability.
What is the status of the Aerojet Rocketdyne Holdings, Inc. (AJRD) acquisition?
L3Harris entered into a definitive agreement to acquire AJRD for approximately $4.7 billion in an all-cash transaction. The acquisition is proceeding through regulatory review, and the company and AJRD have received a Second Request for additional information from the Federal Trade Commission (FTC). L3Harris expects the transaction to close in fiscal year 2023.
How has the company's debt position changed, and what is the impact of the TDL acquisition on its balance sheet?
The company's long-term debt, net, increased to $9.0 billion from $7.0 billion at the end of the previous quarter. This increase is largely due to the $2.0 billion draw on the Term Loan 2025 to finance the acquisition of Viasat's TDL product line. The TDL acquisition also significantly increased goodwill and intangible assets on the balance sheet.
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