L3harris Technologies Inc

NYSE:LHX

Greetings. Welcome to the L3Harris Technologies First Quarter Calendar Year 2025 Earnings Call. [Operator Instructions] Today's call will be focused on question and answers following brief opening remarks. [Operator Instructions] As a reminder, this conference call is being recorded.

It is now my pleasure to introduce your host, Dan Gittsovich, Vice President of Investor Relations. You may begin.

Thank you, Ena. Good morning, and welcome. Joining me this morning are Chris and Ken. Earlier today, we published our first quarter earnings release detailing our financial results and updated 2025 guidance. We also filed our 10-Q and provided a supplemental earnings presentation on our website.

Today's discussion will include certain matters that constitute forward-looking statements. These statements involve risks assumptions and uncertainties that could cause actual results to differ materially. For more information, please reference our earnings release and SEC filings. We will also discuss non-GAAP financial measures, which are reconciled to GAAP measures in the earnings release.

With that, I'll turn it over to Chris.

Thank you, Dan, and good morning, everyone. During our January call, I discussed how this administration is planning to drive transformative change like never before, and we are seeing it unfold daily. L3Harris isn't only embracing these changes. We are helping shape the future and advocating for more commercial-like business practices within the DoD. Our trusted disruptor culture and mindset continues to deliver results. It enables us to stay agile and rapidly adapt to the changing environment, whether from the administration or Allied Partners or world events. .

The external environment remains dynamic, and since we live it every day, I thought I'd give you the latest update and how we assess its impact on L3Harris. We're pleased that President Trump signed a full year continuing resolution. Unlike a traditional CR, this bill allows for new program starts, greater budget flexibility and affirmed the budget in line with the expected 1% increase over 2024 levels.

Congress is now focused on a reconciliation package, which could include over $150 billion in additional defense funding. We view the continued emphasis by key congressional leaders to bolster our national defense as a positive sign for us. There are many initiatives within the DoD in Congress focusing on existing program capabilities, cost and schedule performance and investments in emerging technologies.

To highlight a few. Each service has been asked to reduce 8% of their budget to allow for reallocation of funding to administration priorities. We don't have any insights into these deliberations at this time. Secondly, as part of this process, the 74 MDAP, which is the major defense acquisition programs are being evaluated to identify those that are either 15% over budget or 15% late to schedule. For the programs where we are prime, our performance is solid. And for those where we are a subcontractor, we are highly dependent on the Prime's performance. DoD issued their 17 priorities, which we are well aligned with. Our 2 most recent acquisitions are clearly in the sweet spot for capabilities needed for the future fight and the classified interim national defense strategy was released focusing on deterring China and defending the homeland. All these initiatives may be hard to follow from the outside, but clearly show a fresh look at aligning dollars to programs that are performing well while reallocating budget to the administration's identified priorities.

You saw the President Trump and Secretary, Hegseth suggested that the upcoming 2026 presidential budget request could be as high as $1 trillion. This represents strong top line growth and highlights a sense of urgency and is another positive development. Over 130 executive orders have been issued in the first 100 days, and I wanted to highlight a few, starting with Golden Dome. We're well positioned to support this initiative and ready to respond directly to customer requests and contribute to emerging industry teams given our world-class capabilities and missile warning, tracking and discrimination. We've made substantial investments in new space factories in Fort Wayne, Indiana and Palm Bay, Florida. We are the only company to secure awards across all 3 tranches of the Space Force's tracking layer and are prepared to respond to the recently released RFP for the next tranche expected to be awarded later this year.

Our Hypersonic and Ballistic Tracking Space sensor satellite known as HBTSS, launched in February 2024 and is the only proven on-orbit system capable of tracking the new rain hypersonic missiles. This is expected to be a core component of the Golden Dome architecture. If we were to get an award in the next few months, we could launch enough satellites into orbit, while President Trump is still in office, thereby having complete coverage of the U.S. We broadly participate across offensive and defensive missile programs, providing propulsion and attitude control for all interceptors, both in production and development. This supports our long-term growth and underscores our leadership in this area.

One of my favorite executive orders is entitled Restore Common sense to federal procurement. This focus is on simplifying the acquisition process across the federal government. We've been the only major A&D company publicly advocating for reform and supportive of those efforts. I continue to think significant changes in the best interest of the defense ecosystem and the long-term benefits will be significant for the country and our company. Those efforts in prioritizing budget for high-priority capabilities, advancing innovation, promoting efficiency and acquisition and implementing risk reduction policies all aligned with our strategy and keep us at the forefront of innovation and customer alignment.

As the DoD considers procuring more through a commercial model, we are very comfortable with this approach with over 20 years of experience and about 20% of our products already being sold in this way. At its core, our LHX next initiative embodies [indiscernible] principles, tailored to accelerate internal transformation through greater speed, efficiency and agility.

Turning to International. We're seeing a significant increase in defense spending as our NATO allies modernize their technologies. We continue to see strong demand for our mission-critical solutions across key regions. So far, we've seen the need for the most advanced battlefield proven equipment, taking priority over politics, and we are staying closely connected with our customers, through our NATO offices in countries, including Poland, Germany and the Netherlands and the U.K. As the global defense landscape shifts, we are exploring new models for collaboration, including partnerships with European domiciled companies. We secured a key international award just after the quarter closed with the Dutch Ministry of Defense for network modernization and software-defined radios valued at over $1.1 billion.

The Netherlands selected our radios for their battlefield based on our proven hardware and software which deliver industry-leading resiliency, low probability of detection and Intercept, while ensuring secure and interoperable communications with U.S. and allied forces. Looking ahead to 2026, we remain confident in achieving our financial framework, $23 billion in revenue, low 16% margins and $2.8 billion in free cash flow. With the priorities of the new administration, we're well positioned to continue to drive profitable growth while meeting our customers' evolving mission-critical needs and delivering on our commitments. For example, as a result of our ability to rapidly respond to customer requirements. Early in the second quarter, we secured a classified award in our ISR business valued at over $350 million along with a $200 million international award.

And with that, I'll turn it over to Ken.

Thanks, Chris. Our focus on profitable growth is delivering results. We had a strong first quarter with performance reflecting continued momentum and improvement across our diverse portfolio of products and programs. While we're not without challenges, our ability to proactively manage the portfolio addressing headwinds in some areas while driving performance and others continues to give us confidence in our approach and execution.

This is also the first quarter we're reporting under our new non-GAAP EPS methodology. This change marks another step in our efforts to improve the quality of earnings and narrow the spread between GAAP and non-GAAP results, enhancing transparency and alignment with how we manage the business. Now let's talk about consolidated results for the quarter. Revenue was $5.1 billion and reflected flat organic growth as we operated through a dynamic external environment and were impacted by a short 12-week quarter.

Segment operating margin was 15.6%, marking the sixth consecutive quarter of year-over-year margin expansion. Non-GAAP EPS was $2.41, and up 7% year-over-year. Free cash was an outflow of about $70 million as first quarter cash flows are typically the lowest of the year. This represents less than half the outflow we saw in Q1 '24 and gives us confidence in our ability to deliver free cash of $2.4 billion to $2.5 billion for the year.

This quarter, we returned nearly $800 million to shareholders with about $570 million in share repurchases and $230 million in dividends, marking our 24th consecutive annual dividend increase. Returning excess cash to shareholders remains a top priority, and we expect to repurchase more than $1 billion in shares this year as previously updated. Additionally, taking advantage of favorable market conditions, we transferred $1.2 billion of pension obligations to an insurance provider without any cash contributions or book losses, reducing future risk and volatility.

Turning to our segment's first quarter results. CES delivered revenue of $1.3 billion, up 4% and driven by continued strong international demand and quick turn book-to-bill deliveries. Operating margin increased 150 bps to 25.5%, reflecting favorable high-margin international mix for resilient communications as well as LHX next cost savings across the segment. IMS revenue was down was $1.6 billion, down 2%, and operating margin was 12.8%, up 140 bps. And Revenue declined due to lower aircraft missionization volume and the anticipated ramp down of an ISR mission operations program. Operating margin increased due to strong program performance increased volume of higher-margin airborne electro optical sensors and LHX Next cost savings.

SAS revenue was $1.6 billion, down 6% organically, primarily due to lower volumes associated with program timing and reduced F-35 volume as our Tier 3 mission computing hardware transitions from development to a more gradual production ramp. Operating margin was 10.9%, down 140 bps due to continuing challenges on some legacy fixed-price development programs in space that are in later stages of completion, all of this partially offset by LHX Next cost savings.

AR delivered strong results with 9% organic growth. Growth was driven by improved production volume across key missile programs and new program ramps. Operating margin declined 110 bps to 12.1% and due to lower net favorable EAC adjustments, partially offset by higher volume and LHX NeXt driven cost savings.

Now let me turn it back to Chris. Thanks.

Advancing strategic collaborations remains a cornerstone of our trusted disruptor strategy. Most recently, we announced a new partnership with Piper Government Solutions, Amazon government-focused subsidiary. This effort combines our trusted tactical communication systems with their global low earth orbit satellite network to deliver resilient hybrid SatCom solutions. This capability will offer high-speed, low latency connectivity with out-of-the-box interoperability, providing greater flexibility and mission assurance across the military, public safety and commercial domains. .

This collaboration formalizes our joint work and reflects our commitment to delivering secure, resilient communications in contested environments and creating partnerships with nontraditional participants. It's a differentiated solution that plays to our strengths and aligns with growing demand for hybrid multilayered networks. This arrangement also expands the use of our subscription-based and commercial business model revenue. Another new partnership is with Shield AI on the groundbreaking demonstration of AI-enabled unmanned systems for electronic warfare operations. leveraging our software-defined electromagnetic battle management ecosystem with Shield AI's hive mind autonomy, we're enhancing decision-making and complex battlefield environments.

This collaboration will provide scalable multi-domain solutions for AI-enabled control of swarming systems for the U.S. and its Ally. We are a minority shareholder in Shield AS. We're also making solid progress on our partnership with Palantir. Together, we're supporting the U.S. Army's Titan program, where we are leading the communications systems integration for Palantir. Further, we're integrating Palantir's foundry software platform with our software-defined tactical radio networks. This collaboration is driving new insights and advancements, bringing artificial intelligence to the battlefield. By enhancing the data processing power of tactical networks, we're enabling faster, more effective mission execution for war fighters at the edge.

Together, we're pursuing a new opportunity that emerges directly from this partnership to modernize and integrate AI and resilient C2 comms into a next-generation C5 ISR architecture for international customers. Partnerships like these and many others allow us to accelerate innovation and rapidly field advanced capabilities. By taking a more thoughtful and open systems approach leveraging the strength of our partnerships and existing capabilities and bandwidth, we're able to rapidly adapt and deliver differentiated solutions that meet evolving mission-critical needs.

Back to you, Ken.

First, a few comments on LHX NeXt and our portfolio, then I'll move into guidance updates. We remain focused on executing our LHX NeXt initiative and delivering $1.2 billion in gross run rate savings this year. We are nearing completion of the cost optimization phase of this initiative including driving supply chain savings, process improvements and facility consolidation. As a result, you may have noticed the reduction in corporate unallocated costs as LHX NeXt implementation costs ramped down. We will, of course, maintain our continuous improvement framework and drive for year-over-year cost savings. The next phase of LHX NeXt is centered on enterprise transformation, leveraging AI-enabled solutions driving enterprise-wide digital transformation and optimizing our supply chain to become leaner and more agile.

We are developing our LHX operating system for all functions so that we have a common way of executing and managing our business. We continue to proactively reshape our business. And this quarter, we further sharpened our national security focused portfolio, by completing the divestiture of our Commercial Aviation Solutions business, the last remaining commercial aerospace business in our portfolio.

Additionally, we transitioned our fusing and Ordinance Systems, or FAS business from IMS to AR as part of our portfolio optimization efforts. We expect this shift to drive additional synergies as we align across common customers, and leverage internal expertise for key rocket motor content.

Turning to guidance updates for 2025. As Chris noted, there are several moving parts in the current environment. But the key takeaway is that we see as much, if not more opportunity than risk ahead. That said, our updated guidance reflects a balanced and disciplined approach. It incorporates our solid Q1 performance, while taking a risk-aware posture as we await greater clarity on several fronts. Specifically, we are monitoring the FY '26 defense budget details around the implementation of the Golden Dome executive order and other recent directives and further clarity around the budget tied to the 17 priority areas outlined by the DoD. Until we have greater visibility, we believe this is the most prudent path forward and expect to provide further updates on the Q2 call.

With that, we now expect revenue of $21.4 billion to $21.7 billion representing organic growth of 4% at the midpoint and reflecting a slight increase relative to growth implied by prior guidance. This update reflects the elimination of about $525 million of revenue related to the CAS divestiture. We are maintaining our segment operating margin guidance of mid- to high 15%, despite the elimination of higher-margin CAS revenue, supported by continued LHX NeXt cost savings and confidence in strong program execution. Non-GAAP EPS is expected to be $10.30 to $10.50.

At the midpoint, this includes a $0.55 reduction related to CAS and a $0.25 increase from improved operational performance and capital deployment actions, including the pension buyout. Despite the elimination of 3 quarters of CAS revenue, we are reaffirming our free cash flow guidance of $2.4 billion to $2.5 billion, driven by growth, higher profitability and disciplined working capital management. At the segment level, we are reaffirming our Communication Systems revenue outlook of 2-point -- I'm sorry, $5.6 billion to $5.7 billion, with an increase in profitability to 25% from high 24%. IMS revenue guidance is now approximately $6.3 billion, reflecting a $525 million impact from the CAS divestiture and $300 million from the Falls business transferred to AR, about an $800 million reduction from midpoint of prior guidance.

Operating margin is now expected in the mid -- in the high 11% range, down from low 12% due to the divestiture with plans to offset dilution over time through improved program performance and LHX NeXt savings. We are maintaining our guidance for Space and Airborne Systems with revenue expected in the range of $6.9 billion to $7.1 billion, reflecting government fiscal year 2025 budget constraints in the space sector that we expect to abate by 2026.

Operating margin is expected to remain in the low 12% range. Aerojet Rocketdyne revenue guidance is now approximately $2.8 billion reflecting the addition of POS and continued strong growth in missile solutions. We continue to expect margins in the mid-12% range. Although we are closely monitoring the changing trade landscape and have put various mitigation strategies in place, we do not anticipate tariffs to have a meaningful impact on our financial results. We're actively managing any impact within our current guidance assumptions. Most importantly, we are ensuring timely access to international components to mitigate potential disruptions, though these risks are limited. We remain confident in our ability to navigate this dynamic environment while maintaining our focus on execution.

With that, I'll turn it back to Chris.

Okay. Before we open it up to questions, I want to briefly summarize our value proposition and how we're differentiating ourselves in the industry. With strong support from the new administration for Defense and the potential for a $1 trillion budget in 2026, the backdrop is favorable. We're driving relentlessly for profitable growth and are committed to our 2026 financial framework, which we continue to gain confidence in. From a top line perspective, the new opportunities we have won in Q2, as mentioned previously, will contribute to our ability to get there. We have grown our top line organically in each quarter since Q3 of 2022. And except for this 12-week quarter, this will continue for the rest of 2025. Turning to profitability. We effectively manage risk and performance across a diverse portfolio of products and programs, increasing margins even in the face of occasional programmatic challenges. Our LHX NeXt transformation is unique and driving our success. We've now expanded margins year-over-year for 6 consecutive quarters, and we're delivering double-digit free cash flow growth since 2023. With deleveraging largely behind us and share repurchases accelerating, we see a clear path to mid-double-digit growth in free cash flow per share. And last quarter, we increased our dividend for the 24th consecutive year.

With that, Ina, let's open the line for questions.

[Operator Instructions] Your first question comes from the line of Seth Seifman from JPMorgan.

Chris, I wanted to drill in a little bit on something you said a little bit earlier when you talked about international sales and particularly in Europe, I think there's some concern over there given the state of relations between U.S. and some of the European allies. And sense that in the comms business and radios in particular, there are some suppliers in Europe. And so it sounds like you still have a fair amount of confidence in LHX' prospects there. And so I wonder if you could talk a little bit about that. What sort of gives you that confidence going forward.

Yes, Seth, great question. And I expect that there would be some concern. The confidence we're having is the orders that we've been able to book and the discussions we're having with our customers. I mentioned the Netherlands $1.1 billion opportunity here in April that we booked. Poland, Germany, and there's other Eastern European countries we can't disclose. At the end of the day, it comes down to the crypto, the interoperability and the modernization programs that these countries have undertaken. They need new technology. There tend to be 7- to 10-year programs. And given the sense of urgency and the threats in the area, I believe they don't really have the time to go back and start over.

So as I mentioned in my prepared remarks, there's a lot going on in politics, but at the end of the day, you want the best technology available and is proven over and over at our tactical networks, our software-defined radios are superior, and that's why they're being procured.

And your next question comes from the line of Ronald Epstein from Bank of America.

Yes, could you speak a little bit more about Golden Dome. You mentioned that you're making some investment there already. Is that in anticipation of award? Have you already gotten award? I mean how are you thinking about that? And then I have a follow-up, if I may.

Yes. Yes. No, on Golden Dome, we've been seeing a lot of growth in our satellite business. We use that as an example of our disruptive strategy going back several years. So when you look at the whole portfolio of satellites that we're manufacturing, we needed to develop these factories, given the quantity that we have in backlog and those that we anticipate in the future. So no Golden Dome awards have been made. TR T3, Tranche 3 for Spaceforce, the RFP came out that will be part of the architecture. But it's still early in the process. I did mention HP TSS. And if you look at that executive order, it has about 8 different focal points, the only 1 in there that says accelerate the deployment of HBTSS layer is critical because we have the only proven satellite in orbit that works. So that is an acceleration that's why I said if we can get an order here quickly, we can have the U.S. covered, while the President is still in office. Every other part of that executive order uses the phrase develop. So we feel really good about the HBTSS, and I believe this administration is putting money.

We're contractors are performing, and we're hopeful that we can move quickly, get this under contract and start launching these capabilities. But the other part of it is with the Aerojet acquisition, there's a huge part with solid rocket motors and the different interceptors. Ken, do you want to take that?

Sure. Yes. And just high level, Ron, to the investment part of your question, I would say the Golden Dome opportunity aligns very well to investments that we have been making, in particular, in the area of missile warning, missile tracking and that's both in our Fort Wayne operation as well as here in Palm Bay, Florida. So we just believe that smart investments and our alignment to the needs of the customer are being revealed in terms of the focus on Golden Dome.

To Chris' point on solid rocket motors, I think Aerojet is extremely well positioned, not just from a propulsion perspective, but we're on just about every interceptor program to include technologies around divert and attitude control how you precisely get an interceptor where it needs to be. So we're looking at a focus on advancing our capabilities and our production and development on both production and developing Interceptor opportunities like Next-gen Interceptor, glide phase interceptor. And also, we do have a business that does targets for the Missile Defense Agency, and we think that will be an important part of the Golden Dome being able to test the new system and capabilities. So we're looking at opportunities to work with the Missile Defense Agency to try to accelerate that as an enabler for the system as well. So we're excited, and I think we're very well positioned.

And your next question comes from the line of Doug Harned from Bernstein.

On SAS, you've had a lot of success winning SDA contracts, and those are easy for us to see. But when you look at the challenges that you've got that you recognized this quarter with respect to classified programs. Can you help us understand sort of the scale of the split here between classified and other? I know it's hard. But to give us a sense of where the challenge programs are headed, are we going to see these -- the negative impacts, I guess, on margins to see that dissipate as we head into '26 and '27?

Sure, Doug. I can take that question. I would say that maybe addressing the last part of the question first on the challenges. We're certainly managing the challenges on these programs. We've seen it in kind of tens of millions of dollars of negative adjustments across a couple of programs and as we said, those programs are nearing completion. So we do expect that these challenges, while not necessarily behind us, our in a bread basket and should be behind us in '25 or early '26.

Importantly, these are important programs for our country and the war fighter, and we see it as a strong growth area in the future. And we expect, as we've got the technological challenges behind us. It will be a solid growth area for us with good profitability as we move forward.

And then on the SDA business, that is I would say it's been a great business model for us. You may remember that we moved from, call it, a highly capable weather sensing system to a capable missile warning, missile tracking system through advancements in the sensor as well as algorithms and ground processing. We were able to get a position on prime in that dealt with some challenges on that back in '22 and '23. And as we've won successive awards from Tranche 0 to Tranche 1 to Tranche 2, we've been able to drive down cost, give the customer confidence and, at the same time, increase our profitability tranche by tranche. So we're really pleased with the investments we've been making in the space business. It's not without its challenges. We do hard stuff. I'll be clear on that. But it is important, important work for our country and for the war fighter. We're proud of the work we do. We're proud of the challenge we take on, and I think we've got a solid path to managing through it while meeting the guidance that we've put out for you.

And I'll just chime in there, Doug, that we call these legacy programs because they're several years old, and in some cases, predate the merger, which is why I've been pretty outspoken about the fixed price development programs, which these are and how they can come back and have challenges as you're developing and doing hard stuff, as Ken said. I do want to emphasize this does pave the way for future work. None of those programs have been bid. We don't have fixed priced options. So we will know the actual cost. We'll know the technological specs and as additional work comes forward, for similar or identical constellations or satellites. I'm highly confident we will win and we will make money on those. .

And your next question comes from the line of Sheila Kahyaoglu from Jefferies.

Maybe just to stick to as asked, can we talk about the airborne side of the business? What you see as prospects there? It seems like F-35 is only a near-term headwind. There's a turning point there and maybe new pursuits if you're on at F 47? And how do you see LHX playing in that market going forward?

Yes. Sheila. Yes, the the airborne market is solid. And in these cases, we are subs to the primes or the OEMs. You're right on F-35, 2025 is the low point for revenue as the TR3 development comes down and the TR3 production increases. So we'll see growth for our F-35 portfolio in 2026, and that involves all all aspects from core processors to weapon release and some of the other capabilities that we have on that plane. I was thinking -- I'm not sure there's an airplane out there that L3Harris doesn't have some some content on. So we have some great capabilities even things like the T7 and other new development programs we're positioned well, and we can support whatever is needed for next-gen aircraft and future plans. So we feel good about the portfolio, feel great about the capabilities, and this will be a growth area for us in years ahead. .

And your next question comes from the line of Matt Akers from Wells Fargo. .

I wanted to ask, Ken, I guess now that you've been in the Rocketdyne be here for a couple of months. Just curious your initial impressions and kind of thoughts on any opportunities for that business here going forward?

Sure. Thanks, Matt. I appreciate the question. Yes. Look, my initial impressions are it's a great business. It's a fantastic team. And we're very well positioned as we look forward to address the critical needs of our country and our war fighter from a tactical and large solid rock and motor perspective. We're very focused on capacity expansion, in particular, in the Missile Solutions business. And I think you're seeing that start to reveal itself in terms of 9% revenue growth at Aerojet and solid double-digit growth in the Missiles business in particular. And again, that's both climbing the ramp on the tactical side as well as starting to see some new programs kick in, in terms of primarily large solid rock and motors.

As I mentioned in response to an earlier question, we're excited about the opportunities at Golden Dome. At Aerojet, again, acceleration of Interceptor both production and development programs as well as targets for Missile Defense Agency. And then we're certainly focused on the space propulsion side of the business as well, protecting NASA SLS Artemis and our RS-25 engine there. We believe that particular program aligns very well with national security purposes in returning to the moon and making sure that we don't see the moon to one of our country's adversaries.

And then we're also focused on accelerating and driving production efficiencies on the RL10 largely in support of ULA, which we believe is the world's most capable second-stage engine -- we've made some changes there, driving additive manufacturing, which should enable us to see some efficiencies and acceleration as we move forward. So great business, great team. I'm really excited to be leading it and been spending a fair amount of time in some of the Aerojet facilities, Camden, Arkansas, West Palm, Canoga Park, California. And as I've been engaging with the team, it's just -- it's fantastic and we're really very well positioned.

Yes. And in my discussions with the customers, they're very pleased that L3Harris made this acquisition. And more importantly, they're impressed with the turnaround. So I believe we're absolutely in the right market at the right time and the future is quite bright. .

And your next question comes from the line of Noah Poponak from Goldman Sachs.

Just a few questions on the outlook, a few of the outlook items. Given the divestiture coming out, reiterating the $23 billion for 2026, I think, would require closer to 7% organic growth in 2016 versus the 4 this year and the 4 in the CAGR you've talked about. Can you maybe just talk about -- I know you've described an opportunity-rich environment here, but how much risk is there to just getting things on contract quickly enough to achieve that? And then for '25, Ken, the pension income and interest expense change, I think looked like about $0.20 and you called the $0.25 operational. I'm just wondering how much you're ahead of plan operationally versus that being below the line? .

Sure. Let me address the first question, and then I can get to the second part there. So look, in terms of the growth drivers, the 2026, Chris mentioned in his prepared remarks that we are building confidence to the 26 framework and the $23 billion in sales, and there's a number of moving parts, and let me just kind of walk through them. First of all, Chris mentioned a classified award that we booked early in the second quarter at IMS, and we see that contributing to revenues in '25 and into '26. There is also an IMS international booking that Chris mentioned, and we see that contributing in '26. We believe that space will return to growth. As we mentioned, there are some budgetary challenges in government fiscal year '25. But we know that there's a focus on that, and we see more budget in FY government's fiscal year '26 on space, whether that's SDA T3, potentially accelerating into the fourth quarter of '25 as an award as well as the potential for upside on Golden Dome opportunities. And then ARIGEt-Rockedine will continue to contribute growth in terms of missiles capacity again, both at the tactical missile level as we climb the ramp as well as some of the development wins that we've seen in the interceptors and large solid rocket motors that's across a number of interceptor programs, classified programs, Sentinel and others.

And then as Chris mentioned, the F-35 headwind that we see in 2025 will abate. So we are building confidence. We understand it's a 7% growth rate in the '26, but we feel like we've got a really solid path to get there and feel better about that today than we did 1 quarter ago. In terms of the second question, we look at our performance in Q1.

We think it was solid performance. I'm not going to parse out $0.05 here or there at the EPS level, but we think the operations certainly contributed. There clearly is some benefit of interest and capital deployment actions, whether it's pension or as we've updated, we think share count with the repurchase that we've done in the first quarter will be somewhere between 188 million to 189 million shares versus previous 190 million. So we're feeling good about what we're doing to drive upside to EPS, whether that's performance of the segment line or capital deployment actions, and we're just -- we'll continue to crank through that and try to drive upside at the segments through the remaining 3 quarters of the year.

Yes. No, we haven't really seen an abnormal slowdown in getting orders, I think it's just the usual change of administration, nothing beyond that. I think just about everybody's book-to-bills were below 1.0. We kind of manage it and look at it at an LTM basis. So we're at 114 in on a book-to-bill, which gives me confidence in the growth. And again, we had this 12-week quarter, and I think we booked almost $1 billion of orders in the first week of Q2. So there's growth in cyber, which is all classified, great opportunities in the Mid East. And these partnerships and focus on AI, I think, are going to be able to contribute more in '26 than maybe people appreciate. So thanks for the question. .

And your next question comes from the line of Robert Stallard from Vertical Research Partners.

Chris, just wanted to follow up on Sheila's question from earlier on with regard to the F-35. Lockheed Martin said a couple of days ago that they're looking to substantially enhance the capability on the aircraft, exactly what Jim take said. But I was wondering if there were any opportunities there for L3Harris to be involved with this process?

Yes, I would think so. We are leading the hardware piece of TR3, and I think a lot of those TR3 capabilities when they're combat ready and operational, will give significantly improved capabilities for that aircraft. So I think we're well positioned. I think, in fact, we're in the midst of doing a lot of that work now. We never really talked about the retrofit market. So to the extent there's continued upgrades in the core processor or the digital cockpit or the memory system. We always talk about the current deliveries, but there's also a retrofit perspective. So I think we're well positioned. I think we're one of the few that have the capabilities they need. So we'll work closely with Lockheed and see how we can help and support them.

And your next question comes from the line of Myles Walton from Wolfe Research.

Chris, I was wondering, some defense executives have had meetings with the President and sort of made direct appeals as it relates to their solutions. I'm curious to the extent that you've been able to do that. And then maybe more from a budget outlook perspective, what is the time line you're currently thinking about in terms of gaining visibility into the fiscal '26 budget, the Golden Dome and the 17 priority areas. Do you see that as being sort of in May, June or later than that?

Yes. Thanks, Myles. I'll take the second 1 first. Yes, we're actually expecting the 2026 PBR in the month of May, I think it's going to be referred to as a skinny PBR with the dollars allocated more at the mission level than at the program. specific level, a little different than in the past. And I think a lot of those are going to probably be aligned with those priorities, whether it's homeland missile defense, ammunitions, autonomy, counter UAS. And then at that level, we're working hard to make sure that our programs are supported and the dollars will be allocated to them. So it's a little different process. But we'll have that number. Everyone will have it. I think within the next couple of weeks is what I've been told. And relative to customers, I can assure you I spend a lot of time in DC or wherever I need to go to meet with the right people and not only myself but the segment president. So I feel we have access pretty much to anyone we need and want access to. And I think our message is clear and concise and it's unique, and people appreciate the capabilities and the speed in which we're willing to do the work. So we feel really good on that front. .

And your next question comes from the line of Jason Gursky from Citigroup.

Chris, you've been pretty forward leaning on procurement reform and the need for it and have even given some prescriptions to the building. I'm just kind of curious to get a few thoughts -- a few more thoughts from you. These efforts obviously are geared towards speeding things up and saving money. And I'm kind of curious on the saving money part, whether this is to put downward pressure on spending overall or if it's to increase the purchasing power of DoDs. So they're going to get more for the money that they're spending, I would love to get your thoughts on what the intent here is. And then maybe just talk a little bit about what you think would be some low-hanging fruits, some easy wins for them to go get. And then lastly, what do you think the overall impact of an exercise kind of like a rewrite of a is going to have on the industrial base. Is this going to favor 1 type of company versus another 1 type of technology versus another? Just kind of your overall thoughts on the longer-term implications for the industrial base as we go into what looks like is going to be maybe a full rewrite of FAR.

Yes. Thanks, Jason. No, I'm passionate about trying to drive reform. And there's a lot of initiatives out there driven by the war fighter members of Congress, and I just want to make sure that the defense industrial base has the seats at the table because we do have a perspective. So speed and agility saves money and the quicker we can make these acquisition decisions and the sooner anyone can get under contract, the better off we are as a country because we can get those capabilities to the war fighter. So by saving money, not only in reducing the time to get an acquisition but allowing companies to have multiyear contracts, commercial terms. We have so many competitive bids. Let's put out the let's get the proposals and let's make a decision and go quick. And the goal would ultimately be to get more purchasing power. I mean the defense industrial base. In my opinion, it's pretty much absorbed all the inflation and the impacts of COVID, given all of our hundreds of billions of dollars of backlog that we have not been able, until recently, to flow those costs through.

So the quantities that our customers are getting are less than they probably want. So this will be a way maybe to increase back the quantity I did write a letter reforming far, getting rid of the cost accounting standards. I think it's odd that we need 3 sets of books, a GAAP set of tax book tax sets and cost accounting, drives an incredible amount of inefficiency audits out of Hazou, disclosure statements, makes it hard to run the business and do what you would think would be a logical thing relocating businesses, consolidations, all that take on a life of their own. The truth in negotiation to have those requirements for every contract over $2 million that was pretty much darn there everything they buy. If we want to keep Tina, which I'm in favor of, we ought to raise that to $0.5 billion or $1 billion. And then it just comes down to commerciality and like I said, if we can get more DoD, commercial-like practices, business practices, I think that's great. I think it's going to favor the companies that can adjust and go quickly and adopt to new change. I think our culture, mainly as a result of what we've done with LHX NeXt. I think our employees are used to change on a daily or weekly basis. So I think we can adapt rather quickly. There'll be IT costs and systems costs and all that kind of stuff. But hard to imagine there's anything negative coming out of this type of reform and even secretary Hegseth put out some guidance on buying software.

So the future software, resilience communications, changing the way they buy these types of services whether it's subscription, commercial or otherwise, I think is a game changer for the industry and a game changer for L3Harris and can't wait to get to that point.

And your next question comes from the line of Michael Ciarmoli from Truist Securities.

Ken, just going back to, I think, Noah's question on that bridge to 2026 growth. I think I heard some of the wins, which I think were international. International revenue looks to be up about 10% this quarter. Do you have any assumptions for sort of the international growth trajectory for the remainder of this year into '26? And then just the other one, is there any more portfolio shaping that you think materializes between now and, call it, the end of the year? Or do you think you're kind of set in the organization right now?

Sure. From an international perspective, as I was answering Noah's question and talking about the particular drivers to '26, there was a particular international award at IMS within the ISR sector that I was referencing there. your question on international, yes, it is growing faster than the overall business. And we expect that to continue. Much of that is within Communications segment a bit at IMS as well. And we've got that factored into the guide. And certainly, as I said, it is a part of how we're confident in getting to the 2026 numbers. So I feel good about that. And again, overall, I think that the cards are laying down real nicely for us in terms of in terms of the benefit. It's not 1 or 2 things that are going to get us there. I think we've got a solid path of 5 or 6 individual items that are are all either booked and will be in Q2 backlog or we've got a solid path to getting there. So again, we feel really good about that. International absolutely will contribute, but solid domestic growth as well. And we see that enabling us to get to that 7% growth for '26. Was there a second part of the question, Michael? .

Asking about portfolio shaping, whether there's any more -- anything left to be done?

Yes. Thank you.

Yes, I'll just take that one. Yes, we're always looking at refining the the portfolio. And I would say nothing significant. We're not obviously trying to be the largest company. We're trying to be the most valuable. And there is a benefit of focusing on those core competencies that you're good at, whether it's ISR space, resilient comms, weapons and munitions, we still have a lot of small one-off entities that no honesty don't really move the needle, and we get calls on a regular basis. So we can get a good price, maybe we do a little more pruning. But there's a lot of concern on the growth of '26, but it comes down to the portfolio. And if you look at our portfolio, I mean, I couldn't be happier with what we have. And in just the 5 years or so since the merger, we did divest and have divested over $3 billion of revenue, and we've acquired $3 billion of revenue. And if you look at these priorities, whether it's nuclear modernization, defense, munitions, you look at these MAP programs and our performance probably not having a huge platform is not a bad place to be at this particular point. So I think it's all about the portfolio. We've got the portfolio aligned with this current administration's priorities. We can go fast. Our products aren't that expensive, which is why they're appealing internationally. And this partnership strategy is making a difference. I gave a couple of highlights whether it's Kiper, Palantir, Shield AI, we have a couple of others in work. We are the go-to people that are willing to work with anyone as a prime [indiscernible] a merchant supplier, and that's going to fuel the growth for the future. .

Let's take the last question.

And your last question comes from the line of Peter Arment from Baird.

Ken. Chris, you mentioned SDA programs in your opening remarks. I was wondering if you could just give us an update on how the contracts are performing there. I know there were some leadership reviews going on, and it doesn't seem like it's resulted in any delays in the programs. I mean just in the context of Golden Dome, are there going to be overlaps? Or just how you're thinking about that overall effort here with your satellite.

Yes. Thanks, Peter. Yes, Tranche 0 is an orbit performing well. 1 and 2 are moving along. Ken and I actually had couple hour reviews earlier this week to go through these. It is going to be part of the Golden Dome architecture as we understand it. They put out the RFP. This is going to be a 2026 award. They're now looking at accelerating it into 2025. So I think we're well positioned. We're making money. We're delivering on time, and these are pretty reasonably priced in the big scheme of things. So we're excited about it. And all these constellations, we keep talking about tend to have 3-, 5-, 6-year lives. So once you get them up, whether it's 50, 100 or 200, there's going to be a recycle or replenishment as well. So I think we're really well positioned in the future price, especially in the missile tracking and warning and with the hypersonic threats out there.

So let me wrap it up here. As we close today's call, I want to express my gratitude to our dedicated team of employees and leaders for their hard work and resilience. The progress we've made over the past couple of years is a direct result of their efforts, and I'm proud of what we've accomplished. Before signing off, I'd like to take a moment to remember Rob Spingarn a long time AMD research analyst and friend who recently passed away. Rob is a valued member of the investment community, and we always appreciated his insights and professionalism that he brought to every interaction. Our thoughts and prayers are with his family during this difficult time, and he'll be greatly missed.

Thank you for joining us.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating, and we ask that you please disconnect your lines.