01—Abstract
Summary
Summary of the 10-Q filed July 26, 2023. Cited figures are marked; the original filing is the authoritative source.
L3Harris Technologies, Inc. (LHX) reported solid revenue growth in its second quarter and first half of 2023, driven by increases across all operating segments.
Revenue for the quarter ended June 30, 2023, was $4.7 billiona, an increase of 13% year-over-year, and for the first half, revenue reached $9.2 billion, up 11% year-over-year. This growth was largely fueled by strong performance in the Communication Systems (CS) segment, bolstered by the recent acquisition of Viasat's Tactical Data Links (TDL) product line, which contributed significantly to the segment's revenue and operating income. Despite increased revenues, net income and diluted EPS saw a decline compared to the prior year, primarily due to higher interest expenses related to new debt facilities and increased costs associated with engineering, selling, and administrative activities, including acquisition-related expenses.
Operationally, the company continues to navigate a dynamic market, with a significant portion of revenue derived from U.S. Government contracts. The pending acquisition of Aerojet Rocketdyne Holdings, Inc. (AJRD) is a major strategic development, expected to close shortly after the reporting period, pending FTC approval.
The company also completed the divestiture of its Visual Information Solutions (VIS) business. Management is focused on integrating acquisitions, managing costs, and navigating the economic environment, including inflation and interest rate changes, while maintaining a strong liquidity position.
02—Key points
Key Highlights
- Revenue increased by 13% to $4.7 billion for the quarter and 11% to $9.2 billion for the first half of 2023, driven by growth in all segments.
- The Communication Systems (CS) segment saw a significant 30% revenue increase for the quarter, partly due to the acquisition of Viasat's TDL product line.
- Net income attributable to L3Harris decreased to $349 million for the quarter and $686 million for the first half, down from $471 million and $946 million, respectively, year-over-year.
- Diluted EPS also declined to $1.83 for the quarter and $3.60 for the first half, from $2.42 and $4.86 in the comparable periods last year.
- Interest expense increased significantly due to new debt facilities, particularly the $2.25 billion Term Loan 2025 used to fund acquisitions.
- The company successfully divested its Visual Information Solutions (VIS) business for $71 million in net proceeds, recognizing a pre-tax gain of $26 million.
- L3Harris is nearing the completion of its acquisition of Aerojet Rocketdyne Holdings, Inc. (AJRD), with regulatory approval indicating a closing expected shortly after the reporting period.
03—One dollar
Follow one dollar
Of each $1.00 of revenue in Q2 FY2024, L3HARRIS Technologies, Inc. kept $0.07.
- Revenue$4.69B100.0%
- Cost of revenue−$3.51B74.7%
- Gross profit$1.19B25.3%
- Operating costs−$787.0M16.8%
- Operating income$400.0M8.5%
- Interest, other & tax−$51.0M1.1%
- Net income$349.0M7.4%
04—Financials
Financial Highlights
Figures from 10-QQ2 FY2024filed July 26, 2023Financial Statements
Q2 FY2024 against Q2 FY2023
| Line item | Q2 FY2024Q2 FY2023 | Change |
|---|---|---|
| Revenue | $4.69B$4.13B | +13.5% |
| Cost of Revenue | $3.51B$2.91B | +20.6% |
| Gross Profit | $1.19B$1.23B | −3.3% |
| SG&A Expenses | $787.00M$744.00M | +5.8% |
| Operating Income | $400.00M$946.00M | −57.7% |
| Net Income | $349.00M$471.00M | −25.9% |
| EPS (Basic) | $1.84$2.45 | −24.9% |
| EPS (Diluted) | $1.83$2.42 | −24.4% |
| Shares Outstanding (Basic) | 189.20M192.10M | −1.5% |
| Shares Outstanding (Diluted) | 190.10M194.00M | −2.0% |
05—Questions
Frequently Asked Questions
What were the main drivers of the revenue increase in Q2 2023?
The revenue increase was driven by higher performance across all operating segments: Integrated Mission Systems (IMS), Space & Airborne Systems (SAS), and Communication Systems (CS). The CS segment saw a substantial 30% jump in revenue, partly due to the acquisition of Viasat's TDL product line and improved component availability boosting volumes in Tactical Communications and Public Safety.
Why did net income and EPS decrease despite revenue growth?
The decrease in net income and diluted EPS, despite revenue growth, was primarily due to higher interest expenses on new debt facilities like the Term Loan 2025, increased engineering, selling, and administrative expenses (including acquisition-related costs), and a less favorable mix of lower-margin revenue in certain segments. A net change in Estimate at Completion (EAC) adjustments and impairment of other assets also contributed to lower profitability.
What is the status of the Aerojet Rocketdyne (AJRD) acquisition?
The acquisition of AJRD is nearing completion. L3Harris received notification on July 26, 2023, that the FTC will not block the acquisition, and the transaction is expected to close on or about July 28, 2023, shortly after the reporting period of this 10-Q.
How is the company managing its debt and liquidity?
The company has actively managed its debt, including drawing on its $2.25 billion Term Loan 2025 for acquisitions and repaying other notes. It also established a new commercial paper program. Management believes its current cash position, operational cash flow generation, credit facilities, and access to capital markets are sufficient to meet its liquidity needs for the next 12 months and beyond, including funding the AJRD acquisition, capital expenditures, and shareholder returns.
06—Continue