L3Harris Technologies, Inc. 2026 Q3 Earnings Call

Thank you, Hillary, and good morning, everyone. Joining me today are our Chief Executive Officer, Sam Mehta, and Chief Financial Officer, Ken Sharp. This morning, we published our third quarter earnings release detailing our financial results and updated 2026 guidance, and provided a supplemental earnings presentation on our website. Before we begin, please note that our discussion will include forward-looking statements subject to risks, assumptions, and uncertainties that could cause actual results to differ materially. We will discuss GAAP results alongside non-GAAP financial measures of organic revenue, segment operating income, and free cash flow, which are reconciled to GAAP measures in the earnings release. For more information, please refer to our earnings release and SEC filings. With that, let me turn it over to Sam.

Sam? Thank you, John, and good afternoon, everyone.

I've had the privilege of spending the vast majority of my career in an industry devoted to supporting and protecting those who protect us. My passion is helping to innovate and deliver critical capability to our nation, partners, and allies. I'm particularly excited to lead this team of over 43,000 talented and committed employees who share that same passion for delivering the outstanding results that we'll discuss today. These results not only affirm the strong execution of our strategy, but more importantly, form the foundation of an extremely exciting future. We grew organic revenues by 9%, despite having one fewer week as compared to the third quarter of 2025. We grew EPS to $3.28, which is up 33% year-over-year.

We generated $1.3 billion of free cash flow in the quarter, up 195%, and achieved a book-to-bill of 3.2, which translated to a historic backlog of $53 billion. That backlog is highly aligned to four strong growth vectors, missiles and missile products, space, resilient communications, and electronic warfare, and multi-domain sensing. Our capability sets in these categories form the foundation from which we will continue to invest and grow. This backlog also underscores the customer's confidence in our ability to deliver innovation, efficiency, and quality, and will generate sustainable, profitable growth, which is the backbone of our financial performance. In light of this and continued strength of customer relationships, my top priority is to focus on the improved delivery and execution in every aspect of the business. We continue to improve our operational efficiency, which is delivering bottom-line benefit to the company through traditional methods of continuous improvement.

These efforts are now embedded in our DNA and culture, but we will supplement and accelerate productivity and efficiency gains by embracing new techniques and technologies. For instance, we are harnessing the power of automation and artificial intelligence to accelerate delivery of PAC-3 solid rocket motors to customers, in some cases, reducing the amount of traditional manual quality inspections from 21 hours to 6.5 hours per motor. This is but one of countless examples that have enabled us to double our PAC-3 solid rocket motor delivery from last year to this year and will allow us to double again in 2027. We have partnered with companies like Palantir to drive similar efficiency gains in tactical radios, night vision goggles, and WESCAM turrets, just to name a few examples.

In the past few years, we have acquired and developed new products and capabilities in several areas and have also trimmed the portfolio of businesses and product lines that we don't see as integral to our future. The results of that activity are four growth vectors in which we will continue to invest heavily, whether it's capital, innovation or additional capability. I'll start with missiles and missile products. The third quarter represents a watershed moment in our Missile Solutions business. We booked $11 billion of contractual backlog, representing years of future deliveries, validating the investments we made, and we continue to make to fuel the growth of this business. Those orders relate to two critical programs, PAC-3 and THAAD, where we partnered very closely with the Department of War and prime contract customers to improve delivery and quality while not sacrificing the safety of our employees.

From 2023 to 2026, we are increasing deliveries by more than 100%. The good news with these and other critical Department of War solid rocket motor programs is that we're just getting started. For instance, we plan to triple our THAAD solid rocket motor deliveries in 2027 as compared to 2026, and we'll do the same on numerous additional programs. Importantly, these contract awards and improved deliveries validate the investments in people, process, facilities, and supply chain that we've made and committed to make in support of an important national security priority. I would note that the estimated dollar values of these contracts do not include or take into account economic price escalation or the strong demand from international partners and allies, which is to say, we expect there will be upside to these values that we have highlighted.

L3Harris is investing in capacity expansion to provide unmatched speed and scale for the Sentinel Intercontinental Ballistic Missile program. The post-boost system is the propulsion system during exoatmospheric flight. This system has already undergone major milestones, including a hot fire test in 2025. The Stage 3 motor has achieved several milestones on the march to flight testing, including a hot fire test early in 2024. L3Harris has made substantial investments in capacity expansion to accelerate Sentinel production, including ongoing construction of the Arkansas Advanced Propulsion Facilities, which is expected to increase large solid rocket motor manufacturing capacity sixfold. The campus will include more than 20 buildings across 110 acres. Space is the second growth driver and represents a priority capability for our customers.

Whether we are delivering capability as a satellite prime contractor to the Department of War, or as a differentiated provider of payloads to other primes, we are becoming an indispensable player and partner in this growing domain. We are now capitalizing on our previous commitments of nearly $250 million in facility and capacity expansion to capture and deliver important programs like our recently won $955 million AMDT3 award. That win continues to position us as the only company that has been awarded prime contracts across all five space and missile warning missile defense tranches. A clear sign of customers' confidence in our ability to deliver in support of national critical homeland defense.

In addition to our investments in capability and capacity, we also plan to add to our technical prowess in space by investing roughly $175 million over the three years in research and development to position us for continued success and growth. Moving on to resilient communications and electronic warfare, where we have established a proud and historic legacy of investment, innovation, and market leadership. Recent conflicts in Ukraine and the Middle East highlight the importance of continuous innovation in this area. If the warfighter can't communicate, they can fight, but they can't win. A key win in this quarter was the $876 million Next Gen Jammer low-band contract, which allows our pilots to safely navigate highly contested environments. To date, we have been awarded nearly $1.5 billion in support of this program.

While these cost-type contracts typically generate single-digit returns during development, they can drive years of sustained productions and improved margins once development is complete. We continue to see strong demand for our VAMPIRE counter unmanned systems, with orders from the Department of War and international customers exceeding $500 million in the quarter. With significant inbound interest across domestic and international markets, we are well-positioned to accelerate the business and grow our approximately $1 billion pipeline. VAMPIRE is a proven vehicle-agnostic solution that provides advanced reconnaissance and precision strike capabilities against drones, with more than 350,000 operational hours since 2023. As global attention remains focused on the proliferation of drones, VAMPIRE is increasingly important in providing the critical last mile of defense needed to protect warfighters at the tactical edge. No discussion of our capabilities would be complete without mentioning continued innovation and demand for our tactical software-defined radios.

Our commercial business model of assessing market demand, funding innovation, and selling on a commercial basis accelerates delivery of capability to customers. This year, we will deliver more tactical radios to NATO partners, allies, and international customers than to the Department of War, which reflects strong international demand. Having said that, we continue to win domestically. For instance, capturing more than $315 million of awards this year for Army Modernization in conjunction with Next Generation Command and Control program. The fourth growth vector of our portfolio is multi-domain sensing, where we provide critical information, situational awareness, and decision-making advantage to warfighters, ranging from the tactical edge to high levels of command. Our capability ranges from individual sensors to complete mission solutions, from the farthest reaches of space to the deepest depths of the ocean. An exciting example is the recent launch of the Nancy Grace Roman Space Telescope.

We partnered with NASA's Goddard Space Flight Center to provide key components of the telescope, including the optical telescope assembly, which serves as Roman's eye and radiation-hardened electronics that keep the telescope operating approximately 1 million miles from Earth. Importantly, we continue to build momentum in missionized business jets, securing $323 million in contract awards in the third quarter and increasing our year-to-date total to nearly $1.5 billion. This includes an additional two aircraft under the US Air Force's Compass Call program, bringing the total to 12 of the 22 aircraft requested. We continue to be a leader in missionized business jets, which allow our customers a more flexible, cost-effective manner to sense and collect information versus expensive, bespoke, single-mission dedicated platforms. Slide 5 shows our investment priorities, which are highly aligned to our strategy. For the foreseeable future, the most compelling investment opportunity I see is investing in L3Harris.