10-QPeriod: Q1 FY2024

L3HARRIS TECHNOLOGIES, INC. /DE/ Quarterly Report for Q1 Ended Mar 31, 2023

Filed April 28, 2023For Securities:LHX

Summary

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 billion. 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 billion, 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.

Financial Highlights

52 data points
Beta

Revenue

$4.47B

26.1% Gross Margin

Net Income

$337.00M

7.5% Net Margin

EPS (Diluted)

$1.76

Total Assets

$35.51B

Cash & Equivalents

$545.00M

Free Cash Flow

$279.00M

Financial Statements
Beta
Revenue$4.47B
Cost of Revenue$3.31B
Gross Profit$1.17B
SG&A Expenses$773.00M
Operating Income$393.00M
Net Income$337.00M
EPS (Basic)$1.77
EPS (Diluted)$1.76
Shares Outstanding (Basic)190.20M
Shares Outstanding (Diluted)191.20M

Key Highlights

  • 1Revenue increased by 9% to $4.47 billion, driven by growth across all segments, particularly Communications Systems (CS) and Space & Airborne Systems (SAS).
  • 2Net 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.
  • 3The 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.
  • 4L3Harris continues to advance its pending acquisition of Aerojet Rocketdyne Holdings, Inc. (AJRD) for $4.7 billion, which is undergoing regulatory review.
  • 5Operating 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.
  • 6The 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.
  • 7Long-term debt increased significantly due to borrowings related to the TDL acquisition, with total debt, net, reaching $9.0 billion.

Frequently Asked Questions

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.

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.

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.

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.