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DATE
Thursday, July 24, 2025 at 10:30 a.m. ET
CALL PARTICIPANTS
Chief Executive Officer and Chair — Christopher E. Kubasik
Chief Financial Officer — Kenneth L. Bedingfield
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TAKEAWAYS
Orders: $8.3 billion in orders for Q2 2025, reaching a record book-to-bill ratio of 1.5 supported by broad-based demand across all segments.
Revenue: $5.4 billion revenue for Q2 2025, representing 6% organic growth, attributed to ramping new programs and increased demand in every segment.
Segment Operating Margin: Segment operating margin was 15.9% for Q2 2025. marking seven consecutive quarters of year-over-year segment operating margin expansion as of Q2 2025.
Non-GAAP EPS: $2.78 non-GAAP EPS for Q2 2025, up 16% year-over-year, and on a pension-adjusted basis, EPS was $2.42, up 22% year-over-year.
Free Cash Flow: Free cash flow was $574 million, reflecting improved operating income and stronger working capital performance.
LHX Next Savings: Tracking 40% ahead of the $1 billion three-year target for cost savings, with savings expected a year ahead of plan.
Aerojet Rocketdyne Integration: Completed with doubled deliveries, doubled production rate, and reductions in cost of poor quality since acquisition.
CS Segment: Revenue of $1.4 billion for Q2 2025; operating margin 24.4% for CS segment, benefiting from higher domestic volumes and cost savings.
IMS Segment: Revenue of $1.6 billion for Q2 2025, up 6% organically; operating margin 13.2% for IMS segment, with margin aided by monetization of legacy assets but impacted by a negative EAC adjustment related to the Canadian Maritime Helicopter Program.
SAS Segment: Revenue of $1.8 billion for Q2 2025, up 7% organically, linked to higher FAA network volumes; operating margin 12.3%, down 30 basis points due to unfavorable mix, partly offset by LHX Next savings.
Aerojet Rocketdyne Performance: 12% organic growth for Aerojet Rocketdyne in Q2 2025 and a 2.0 book-to-bill, marking the highest revenue quarter on record for Aerojet Rocketdyne.
Guidance Update – Revenue: Company revenue guidance increased by $200 million for 2025.
Guidance Update – Operating Margin: Maintaining mid to high 15% range for segment operating margin guidance, underpinned by ongoing LHX Next cost savings and execution.
Guidance Update – Non-GAAP EPS: Guidance raised by $0.10, reflecting a $0.40 positive impact from first-half performance on non-GAAP EPS guidance and a $0.30 negative offset from recent tax reform.
Guidance Update – Free Cash Flow: driven by operational performance and tax reform benefits.
2026 Financial Framework: Management reaffirmed expectations of $23 billion in revenue (6% year-over-year growth) for 2026.
Golden Dome and HPTSS: Company is ready to deploy 40-45 HPTSS satellites, following Executive Order requirements, with new leadership in place for the Golden Dome initiative and infrastructure investment in Florida and Indiana.
Solid Rocket Motor Expansion: New Virginia facility under construction with robotic-enabled production and similar capacity expansions in Arkansas and Alabama, aiming for record delivery levels.
Notable Contract Wins: Secured approximately $200 million in orders for software-defined interoperable communication systems with Germany, as well as a major award for 130 RL 10 upper stage engines valued near $850 million.
International Growth: new wins include software-defined radios with Germany and the Czech Republic, and replacement of indigenous providers.
TCOM Sector Backlog: Backlog is nearly $3 billion.
FAA Mission Networks: Successful upgrade of the Newark Airport’s telecom infrastructure as part of the FAA’s Newark task force, featuring ongoing opportunities in technology upgrades.
LHX Next Program Outlook: Program to complete implementation by end of 2025; ongoing cost savings initiatives to transition into the E3 operational improvement framework.
Management Statement on Contract Risk: CEO Kubasik said, "we're not signing up to things that are riskier or racier," emphasizing profitable growth and reasonable contract structures.
SUMMARY
L3Harris Technologies delivered a record $8.3 billion in orders for Q2 2025, indicating robust customer demand across every segment and reinforcing the company’s market positioning. Management increased full-year revenue guidance and free cash flow expectations, pointing to both successful execution and tangible effects from LHX Next transformation initiatives, while maintaining margin guidance and raising 2026 free cash flow expectations. Recent milestones include new production facilities to meet surging solid rocket motor demand, preparation for the HPTSS satellite constellation for Golden Dome, and strategic international contract wins supporting long-term growth. The company affirmed its disciplined approach to contract risk, digital transformation, and cost savings as critical levers in sustaining profitability, with management citing progress toward or ahead-of-schedule on all transformation goals.
Aerojet Rocketdyne posted its highest revenue quarter, with doubled production rate at Aerojet Rocketdyne since the acquisition and cost-of-quality improvements following integration.
LHX Next savings are currently 40% ahead of the $1 billion three-year target, with future cost initiatives set to become part of core operations once implementation winds down at the end of 2025.
The TCOM sector backlog expanded to nearly $3 billion, reflecting continuing demand for resilient communications.
CEO Kubasik highlighted above-plan progress on operational initiatives.
Company expects "free cash flow per share will have a CAGR of 15%" from 2023 through 2026, based on updated guidance and anticipated performance.
International orders, including key wins in Germany and Czech Republic, exemplify successful penetration into markets previously dominated by indigenous suppliers.
Management reported, "no change of any significance from our expectation around the margin opportunity" related to LHX Next savings pass-through versus retention.
CEO Kubasik highlighted unique progress and readiness to fulfill the Golden Dome HPTSS requirements, enabled by targeted investment and scalable production infrastructure.
INDUSTRY GLOSSARY
Book-to-bill ratio: The ratio of orders received to revenue billed within a given period, indicating demand strength and backlog health.
EAC (Estimate at Completion): The expected total cost of completing a contract, used to assess contract performance and profitability.
HPTSS (Hypersonic and Ballistic Tracking Space Sensor): A satellite constellation designed for missile tracking and early warning as part of missile defense architectures.
LHX Next: L3Harris Technologies’ enterprise-wide transformation initiative focusing on cost savings, digital process automation, and improved operational efficiency.
Missionized: Aircraft or platforms specially configured or equipped for specific operational missions, often relating to ISR (Intelligence, Surveillance, and Reconnaissance).
TCOM: Tactical Communications sector within L3Harris Technologies, focused on software-defined radio and secure battlefield communications.
Waveform: The specific technical protocol used for transmitting secure communication and data across various radio and satcom systems.
Full Conference Call Transcript
Christopher E. Kubasik: Good morning, everyone. Our opportunity set is more robust than it's been in decades, driven by increased global threats requiring speed, capability, and modernization. These dynamics are unfolding across both US and international markets, creating a significant opportunity for companies that can move fast and deliver on time. L3Harris Technologies is uniquely positioned to lead in this environment. Our trusted disruptor strategy keeps us agile, and after investments in the business, along with acquisitions and divestitures, our portfolio is aligned with our customers' mission-critical priorities, enabling us to execute with a sense of urgency as we head into the second half of the year.
Over the last few months, I've had several meetings with senior DOD leaders, and one message is consistent and clear: Companies that deliver on schedule will be rewarded with new opportunities such as Golden Dome and missile capacity expansion. I'm proud to say we're doing just that. For example, on F-35, our systems are ahead of need, and we are off the critical path for combat-capable TR3 aircraft. Turning to LHX Next savings, we set a goal of taking out $1 billion of cost over a three-year period, and we're currently tracking 40% ahead of that target and a year earlier than planned, putting us on track to achieve our 2026 margin target. At Aerojet Rocketdyne, integration is complete.
We've doubled deliveries, doubled production rate, and reduced the cost of poor quality since the acquisition. This performance gives us and our customers confidence and positions us as a dependable partner. Our second quarter results underscore strong execution and represent an inflection point for our business. We posted our highest organic growth in six quarters and achieved a record book-to-bill of 1.5, clear evidence of the momentum behind our strategy and the alignment of our portfolio with the future of warfare. In May, the administration released its full fiscal year 2026 budget request, calling for about $1 trillion in national defense funding, including $155 billion signed into law through the recent reconciliation bill.
The budget is focused in areas where we are well-positioned. We're seeing accelerated investments in space-based architectures, missile systems, autonomous platforms, and software-defined capabilities, all core strengths within our company. The Golden Dome initiative is a leading example of our alignment with US national security priorities, and momentum is building. Congratulations to General Gutelein on his confirmation as the direct reporting program manager at Golden Dome, accountable for delivering key capabilities of this system within three years as a direct report to Deputy Secretary of Defense Feinberg. His appointment marks an important milestone for one of the most consequential homeland security initiatives in our history, and we're excited to see a proven leader in place.
At L3Harris Technologies, we've been preparing for this eventuality. As we shared on our last call, our ability to detect hypersonic threats is a critical component of the Golden Dome architecture. We're preparing to deploy a full constellation of 40 to 45 proven HVTSS satellites in a timely manner. This isn't a coincidence, as we've invested in Florida and Indiana to scale up space sensor manufacturing and payload integration. We're ready to deliver the HPTSS constellation called for in the executive order. Moving to ground-based interceptors, our propulsion and divert and attitude control systems support nearly every US interceptor program in development or production.
We are rapidly scaling solid rocket motor manufacturing to meet the nation's urgent demand, and this effort carries additional personal urgency. I made a commitment to the Deputy Secretary of Defense and the Undersecretaries of Defense to increase capacity and accelerate deliveries, and I intend to keep it. In partnership with Governor Sanders and Youngkin, we're investing in Arkansas and Virginia to increase solid rocket motor deliveries and drive record production levels. We're not waiting; we're responding to the clear demand signals and delivering now. Internationally, the outlook remains robust. NATO members are now targeting defense spending increases to 5% of GDP, with much of that investment focused on restocking and modernization.
This shift is already translating into meaningful orders for L3Harris Technologies and supports sustained medium to long-term international growth for us. A great example, we recently secured software-defined radio awards from the German and Czech Armed Forces, the type of wins that would not have been likely a decade ago. This represents not only alignment with allied modernization priorities but also instances where we're replacing indigenous providers, a direct result of our resilient, interoperable, battlefield-proven technology and expanding global footprint. With this backdrop, the right strategy, an aligned portfolio, strong demand, operational momentum, and solid financial performance, we are highly confident in our ability to achieve our 2026 financial framework.
We also see a clear path to profitable growth beyond 2026, driven by our alignment with long-term defense priorities both in the US and globally. With that, I'll turn it over to Kenneth L. Bedingfield.
Kenneth L. Bedingfield: Thanks, and good morning, everyone. We are at the onset of a generational opportunity for L3Harris Technologies, given our capabilities and positioning across key, discriminating technologies. Let's talk about consolidated results for the second quarter. Starting with orders, we had a record $8.3 billion this quarter, resulting in a 1.5 book-to-bill. Revenue was $5.4 billion, reflecting strong organic growth of 6%. This growth was driven by new programs ramping and increased demand across all segments. Segment operating margin was 15.9%, up 30 basis points, marking the seventh consecutive quarter of year-over-year margin expansion. Non-GAAP EPS was $2.78, up 16% year-over-year, and on a pension-adjusted basis, EPS was $2.42, up 22% year-over-year.
Free cash flow was $574 million, driven by increased operating income and improved working capital performance. Turning to the segment's second-quarter results, CS delivered revenue of $1.4 billion, up 2%, driven by increased demand for resilient communication equipment and related waveforms. Operating margin remained solid at 24.4%, reflecting higher domestic volumes and LHX mix-driven cost savings. IMS revenue was $1.6 billion, up 6% organically, with an operating margin of 13.2%, up 120 basis points. Revenue increased due to the ramp-up of several classified ISR programs. Operating margin increased due to the monetization of legacy end-of-life assets, partially offset by an unfavorable EAC adjustment from the resolution of a subcontract matter related to lower utilization on the Canadian Maritime Helicopter Program.
Execution performance on the program was strong; however, payment was tied to customer mission cadence, which was well below original bid expectations. The contract is nearing completion, and we do not expect to see more negative EAC adjustments. SAS revenue was $1.8 billion, up 7% organically, primarily due to increased volume in FAA networks and improved program performance in our airborne combat systems business. Operating margin was 12.3%, down 30 basis points due to an unfavorable mix, partially offset by LHX Next cost savings. Aerojet Rocketdyne delivered strong results with 12% organic growth and a 2.0 book-to-bill. Growth was driven by improved production volume across key missile programs and new program ramps.
This marks the highest revenue quarter on record for 50 basis points to 13.3% due to solid performance, LHX Next-driven cost savings, and a favorable contract resolution. We are always striving to improve our operations, including reassessing certain unfavorable contract positions, rationalizing non-core legacy business lines, and monetizing legacy assets. An example is the action we took at IMS to exit an unprofitable contract position while at the same time monetizing associated legacy assets. The resulting impacts offset and created a net favorable position for the quarter. Now let me turn it back to Christopher E. Kubasik.
Christopher E. Kubasik: Thanks, Ken. As we look ahead, several milestones from the quarter highlight our momentum and reinforce confidence in our long-term vision. First, we secured approximately $200 million in orders to deliver software-defined interoperable communication systems to Germany. Secure resilient communications across NATO allies are critical to operational readiness, and our systems are already delivering on that mission. This award adds to recent wins for our Falcon software-defined radios, including The Netherlands' Foxtrot program, along with continued momentum on the US Army's HMS programs. These wins further strengthen our market leadership in resilient communications, and our TCOM sector backlog today is almost $3 billion, a 50% increase from a few years ago.
Turning to Solid Rocket Motors, we broke ground on a new production facility in Virginia, including a cast and assembly center. These modular robotic-enabled facilities will significantly increase capacity, enhance efficiency and quality, and reduce product travel time distances by 90%. This complements similar expansions in Arkansas and Alabama. It's a major step forward in building out the defense industrial base and reflects the progress we've made in the short time since integrating Aerojet Rocketdyne. Demand for solid rocket motor production continues to rise, driven by global conflicts. Our 15% in the quarter and is up 16% year-to-date. Growth review is durable and likely to continue for decades.
Demand is exceptionally strong, and we see significant opportunities for further investment in the business, expanding manufacturing capacity, increasing the workforce, and accelerating deliveries to meet long-term needs and to support sustained growth. We also continue to see strong demand across our space propulsion portfolio. This quarter, we secured a major award for 130 upper stage RL 10 engines valued at nearly $850 million, highlighting our trusted role in enabling space launch missions. Our ongoing partnership with Palantir on the US Army's Titan program continues to mature.
The team is nearing initial deliveries on the first four AI-defined vehicles equipped with our common data links, Link 16, secure SATCOM, and tactical multidomain waveforms, enabling the army to process targeting data faster and more effectively on the battlefield. I'm proud to highlight our engagement with the FAA's Newark task force, where we played a critical role in supporting Secretary Duffy to meet his goal of enhancing the resilience of our communication networks at the Newark Airport. Our efforts were pivotal in upgrading the telecom infrastructure, ensuring robust and reliable communications for one of the nation's busiest airports.
And in the airborne domain, we delivered our second missionized Global 6,500 for ISR to the 100 aircraft delivered and 14 currently under modification. Our platform-agnostic approach and speed-to-field capability continue to differentiate our offerings. Together, these awards and infrastructure investments reflect a common theme: We are accelerating the deliveries of agile, proven solutions to address current and future threats. Back to you, Ken.
Kenneth L. Bedingfield: First, an update on LHX Next. Then I'll move into guidance updates. The current phase of the LHX NEXT program focused on enterprise transformation, deploying the LHX operating system, digitizing core business processes, and embedding AI-enabled tools across the business. These initiatives are not only improving execution and decision-making, but they're also building a more scalable, efficient foundation for growth. We're already seeing results from improved operational performance to new business wins. We expect these transformation efforts to drive sustained revenue growth and cash generation over the long term. Turning to guidance updates for 2025. Our increased guidance reflects our strong first-half performance and improved outlook for the rest of the year.
For the total company, we are increasing revenue guidance by $200 million, expecting strong organic revenue growth of 5% for the year. We are maintaining and are increasingly confident in our segment operating margin guidance of mid to high 15%, supported by continued LHX NEXT cost savings and confidence in strong program execution. Non-GAAP EPS guidance reflects a 40¢ increase from strong first-half operating performance and a higher revenue outlook, partially offset by a 30¢ headwind from recent tax reform. While eliminating the requirement to capitalize and amortize R&D expenses, it has some near-term tax rate headwind. As a result, we are raising our non-GAAP EPS guidance by $0.10.
We are increasing our free cash flow guidance to approximately $2.65 billion, an increase of $200 million from a combination of operating performance and tax reform. Cash tax benefits from tax reform will continue and also drive an increased free cash flow outlook in 2026. At a segment level, IMS revenue guidance increased by $100 million, reflecting strong performance in the ISR sector. Operating margin is now expected in the 12% range, up from the high 11%. Through improved program performance and LHX Next savings, we are increasing our revenue guidance for SAS by $100 million, reflecting an improved outlook in space. Operating margin is expected to remain in the low 12% range.
And we are reaffirming guidance for CS and AR. Given our strong performance and this generational opportunity in defense spending growth, that we are uniquely positioned to capture, we are also updating our 2026 outlook. On Investor Day in 2023, we set our financial framework at $23 billion in revenue, 16% segment operating margin, and $2.8 billion in free cash flow. We continue to expect $23 billion in revenue for 2026, reflecting 6% growth year-over-year. And we previously updated that we expect margin in the low 16% range.
Now, while investing in key locations like Indiana, Arkansas, Virginia, and Florida, to fuel future growth from Golden Dome and Rocket Motor capacity increases and staying aligned with our customers' mission-critical needs, we're also raising our 2026 free cash flow guidance to $3 billion, a 13% increase year-over-year with even stronger free cash flow per share. With that, I'll turn it back to Christopher E. Kubasik.
Christopher E. Kubasik: Before we turn to questions, I want to take a step back and frame where we've been and where we're going. It's clear how far we've come. Over the past several years, we've reshaped the company through internal investments, strategic acquisitions, and divestitures, building a portfolio squarely focused on national security. We've also deepened partnerships across the government and industry to accelerate innovation and mission outcomes. Our trusted disruptor strategy and culture is delivering and has positioned us at the right place at the right time. We're uniquely aligned to the national security priorities of the US and its allies, whether that's resilient communications, space superiority, or replenishing and modernizing critical missile systems.
The awards and milestones this quarter reflect that alignment and will meaningfully contribute to growth in the years ahead. We've also crossed an important operational inflection point. With strong top-line momentum and expanding margins, we're executing well across a diverse portfolio, delivering strong performance even as we take on increasingly complex missions. Looking ahead, we expect consistent top-line growth with industry-leading margins and increasing free cash flow per share. From 2023 through 2026, our free cash flow per share will have a CAGR of 15%. We are well-positioned for sustained profitable growth over the long term and will remain disciplined in our capital allocation.
You can expect more details on our forward outlook at our next Investor Day to be scheduled in Q1 of 2026. Sylvie, let's go to the Q&A, please.
Operator: Thank you, sir. We will now be conducting a question and answer session. Please limit to one question per person. If you'd like to ask a question, please press star 1 on your telephone keypad, and a confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove yourself from the queue. And if you have any additional questions, please press star 1 again to get back in the queue. For participants that are using speaker equipment, it may be necessary to pick up your handset before pressing the star key. One moment, while we poll for questions. Thank you.
And our first question today comes from Richard Safran at Seaport Research Partner. Please proceed with your question.
Richard Safran: Thanks. Chris, Ken, Dan, good morning. I have a two-part LHX Next question. First, I thought you might explain the comment release about monetizing legacy life assets. I assume that's part of LHX NEXT and footprint production footprint reductions, but I thought maybe you'd correct me if I'm wrong there. Second, given your opening remarks from both of you, could you discuss a bit more about how much runway you have left on LHX NEXT cost reductions? I'm wondering if footprint reductions also are continue to be part of that. Thanks.
Kenneth L. Bedingfield: Yeah. Thanks for the question, Rich. Let me focus on the asset monetization first and the footprint aspect of the question. From my perspective, I think this is really about looking at our portfolio where we are investing and where we see the areas of strategic growth. And as we look at that, we do see a couple of areas where some of the product lines don't necessarily align with the areas of growth that we're investing in and really focused on. And as we see that, we look to monetize those product lines. Think of it as taking future revenue and pulling it forward a little bit.
So I think we've done a good job of that, and in terms of the footprint, that's, I would say, more of a tangential benefit. Certainly, it's really about the strategy and the future growth. But as we exit this product line, it will create an opportunity for us to repurpose that footprint into areas that are growing and aligned with the strategy. On the next question on LHX NEXT, look, we'll continue to drive cost savings. We'll continue to drive facility consolidations and really focus on that. It'll become more of our ongoing effort of operational improvement, what we call E3.
But the LHX NEXT program from an implementation perspective will largely be through the system by the end of 2025.
Christopher E. Kubasik: Yeah. I'll just add on that. Rich, just on the product line, it's really all about management focus. And I want the team focused on things that are gonna move the needle for our customers and shareholders. So these are really small immaterial product lines that have better owners in our opinion. So we effectively are monetizing today what would have been immaterial amounts of revenue, OI, and cash over the next several years. And, agree with Ken on LHX NEXT. We'll hit the 1.4 or greater cost savings by the end of the year. We'll declare a on the program and make it part of our normal business cadence.
All while transitioning to the transformation of the company and having more of a digital ecosystem to get timely accurate data to make our decisions. So that's how I see the future played out on LHX NEXT.
Richard Safran: Thanks to both of you. Appreciate it.
Operator: Next question is from Ronald Epstein at Bank of America. Please proceed.
Ronald Epstein: Yeah. Hey. Good morning, guys. Just wanted to follow-up with a question on the international opportunities that you both referred to in your prepared remarks. Given the increased defense spending in Europe, what impact do you think that'll have for you guys? And what opportunities are out there? You know, kind of outsiders looking in. Can we kinda keep an eye on?
Christopher E. Kubasik: Yeah. Thanks, Ron. We're seeing solid growth internationally. You know, we've always had about 20% of our revenue from our international customers in Europe. As I mentioned in my prepared comments, we're seeing a lot of opportunities really focused on the telecommunications, the software-defined radios, in countries that historically went to their indigenous providers. So the importance of interoperability and resilience and security is making a huge difference. You know, our business jets, missionized business jets, we have opportunities in the Far East and also in Europe as well. So that continues to be a growth market for us. And then, of course, the Mideast, whether we're a prime, a sub, or a merchant supplier, we do get the benefit.
Especially with the missile production. As a subcontractor going to the Mideast and other parts of the world. So we feel very confident about our international growth and think it's reflected in today's results.
Ronald Epstein: And then, Chris, if I may as a follow on, do you think you need a bigger footprint in Europe? I mean, one of the things that we've heard discussed a lot from, you know, the European allies is just they want kind of more sovereignty. I mean, how do you think about that strategically for the company?
Christopher E. Kubasik: Yeah. Well, I mean, our strategy, Ron, has been to partner and bring the best of breed to our customers. So while we have a footprint of employees and infrastructure in certain countries, the partnership model seems to work best. And we've had great success working with other defense and technology companies around the globe, and again, we're not adverse to subcontracting to them, but more times than not, we're the prime, and we put them on our team. So that's how it works. In the Mideast, you know, we have a little more of a presence because they like to have the technology transfer in the footprint.
But we're agile, and we kinda read country by country what needs to be done. If you recall a few years ago, we opened a factory in Poland for that very reason. So we're happy with the strategy so far, but can adjust if needed.
Operator: Thank you. Next question will be from David Strauss at Barclays. Please proceed.
David Strauss: Thanks. Good morning. Thanks for taking the question. Chris, the growth and margin improvement that you're predicting for forecasting for 2026, could you kind of rank by segment where you would expect to see the most growth kind of highest to lowest and then same from a margin improvement? Standpoint? Thanks.
Kenneth L. Bedingfield: Yeah, David. It's Ken. I can take that question. From a growth perspective, I think we're seeing growth across all four segments. I think we expect that to continue largely. But if you wanted to rank them, right now with the demand we're seeing at Aerojet Rocketdyne, especially around solid rocket motor production and some of the contracts that Chris mentioned that we signed for space propulsion, Aerojet likely would be the fastest grower. As we look at opportunities like Golden Dome and SDA Tranche three that we've responded to an RFP for, certainly, SAS will be a strong grower. CS, as it looks at continued international opportunities, and then IMS as well.
So maybe that's the way to think about it. But solid growth opportunities across all four segments. In terms of margin improvement, I think it comes down to continuing to integrate the benefits of the LHX NEXT program, as well as solid program performance, burning down risk on programs, just performing well. And I think we're seeing that we're on a good rhythm in terms of delivery. I think it's having a couple benefits. Number one, I think it's really giving the customer confidence and providing new awards and new opportunities for L3Harris Technologies. You're seeing that in the over $8 billion of awards in the quarter as well as the solid book-to-bill.
But it's also yielding itself in terms of good margin outcomes. So kind of a win-win, and we expect that to continue into '26 with the low 16% margin rate.
Christopher E. Kubasik: Yeah. I mean, David, the commercial business model is a big contributor to our industry-leading margins, and each and every segment is looking in conjunction with the DOD's desire to go faster at more and more commercial acquisition models. So I think it's gonna be a matter of which segment, which programs, we can transition to more of a commercial model quicker, and that should drive the higher margin sooner. So I think it was December. We said each of the segments would grow the margins 100 basis points. We've either achieved that or are tracking to that. So very proud of the team to get over 16% so quickly.
Operator: Thank you. Next question will be from Myles Walton at Wolfe Research. Please proceed.
Myles Walton: Thanks. Good morning. Chris, how quickly can you get the HPTSS constellation contract under contract, and does that become revenue in '25? And then for tranche three, I think there's an October decision for that outcome. Is your '26 confidence hinge on winning that, or does the '26 sales guidance you have confidence even without winning tranche three? Thanks.
Christopher E. Kubasik: Yeah. Thanks, Miles. On HPTSS, as you know, the general was just confirmed. He's talking about doing a sixty-day study to refine the architecture. So we'll await an RFI or an RFP to see how quickly they're gonna move. I think given the fact that this was the only program highlighted in the executive order, we'd be hopeful that we could get something under contract by the end of the year and maybe that contributes a little bit of the revenue for '25 and clearly a fair amount in '26. T3, it's hard to pull out one particular program, and we've managed more of a portfolio. But clearly, we're gonna make our 2026 framework. We're assuming we're gonna win T3.
If we don't, we'll still find a way to get to 2026 framework. We are proud of the fact that we've had a couple of years of meeting our commitments one way or another. So we manage the portfolio. And as you said, the proposal has been submitted. We're waiting for an October award. There'll be three winners. I think, based on our performance, based on our cost, based on the customer's confidence in us being able to deliver on time, I'd be disappointed if we don't win that.
Myles Walton: Thank you.
Operator: Next question will be from Noah Poponak at Goldman Sachs. Please proceed.
Noah Poponak: Hey. Good morning, everyone. Morning. I wondered if given the strength in the bookings in the quarter, I wondered, Chris and Ken, if you could talk about how you expect bookings to trend through the rest of the year. I know kind of to the prior question and some others, there's maybe some binary-ish things in there, but just curious to hear you talk through it.
And then I guess, given the bookings in the quarter and the last year or two, and the Golden Dome opportunity, is there at least in the scenario analysis that the growth rate breaks out from the four to 6% that you kinda have been talking about for this year, and that's implied by the 23 next year. It seemed like the Golden Dome opportunity could be an accelerant to that. Thanks.
Christopher E. Kubasik: Yeah. I'll go first and then ask Ken to add a little more. Yeah. Clearly, there's a ton of opportunities. We try to secure as much business as we can as quickly as we can. 1.5 is a record. I think that'll be hard to repeat in Q3 and Q4, but we have pretty good visibility and hope to be well over one in both of those quarters. And single, large awards like T3 or HPTS, which could be multibillion dollars, some of the missionization on business jets, in the Mideast or the Far East, again, billions of dollars of awards can move that pretty quickly.
And, the extent you deliver on time, which has been our focus, it does help with the revenue recognition. So yeah, I would hope we could potentially do more than four to I don't know if I'd call it a breakout, but we're highly motivated. And, as I said, the customer wants to reward and allocate work to companies that are delivering, and we're delivering. And, I expect our backlog to grow by the end of the year. And, also expect that our revenue will look strong for the foreseeable future. Ken?
Kenneth L. Bedingfield: Yep. I agree with what Chris said. And from a book-to-bill or awards and backlog perspective, Noah, I think we're looking at a solid second half from an awards perspective. Awards are probably the hardest thing to predict in terms of timing, but certainly, in terms of the number of opportunities we see in front of us, I think we can have a solid book-to-bill in the second half of the year. And as Chris mentioned, we should have a growing backlog through to the end of 2025. So feel really good about our position. And I agree with Chris. I think, looking at the opportunities in front of us, it does give us again, confidence to that $23 billion.
No single order or single award is key to hitting that number given the diversity of our portfolio. But I think if a couple of things go in the right direction, we certainly got the opportunity for driving some outsized growth, not just in 2026, but as we look forward for some period of time.
Operator: Thank you. Next question will be from Douglas Harned at Bernstein. Please proceed.
Douglas Harned: Good morning. Thank you. You know, on the bookings, the $8.3 billion, can you give us a picture of what the major pieces of that were and how that breaks down by segment given it was a big number this quarter?
Christopher E. Kubasik: Yeah. Good morning, Doug. I can tell you each and every segment was over 1.0, Aerojet almost 2x book-to-bill. SAS, close behind, and IFS and communications were kind of in that 1.1 to 1.3 range. So it all added up to a 1.53 book-to-bill. I'll ask Ken to maybe highlight a few of the big wins, but it was not one particular item. It was just across all 14 sectors. And yeah, he can go through the details.
Kenneth L. Bedingfield: Yeah. Thanks, Chris. Appreciate it. Yeah. And, Doug, I would say, again, strong book-to-bill across all of the segments. If you look at Aerojet with a 2.0 book-to-bill, solid orders in both the missile solutions business as well as space propulsion. At SAS, really strong orders in mission networks and the work does with FAA. And, solid positioning for growth in airborne combat systems sector. IMS had strong orders at ISR as well as maritime. And then CS, again, we continue to see strong orders from an international perspective. I think Chris mentioned a couple, Germany and Czech Republic.
So really solid performance across the board, and I think maybe more importantly, all of those orders are very aligned to the areas that we're investing in and driving the strategy towards from a growth perspective.
Douglas Harned: Thank you.
Operator: Next question will be from Robert Stallard at Vertical Research. Please proceed.
Robert Stallard: Thanks so much. Good morning. Hey, Rob. Ken and Chris, just wanted to follow-up on Chris' comments earlier about the customer wanting to go faster, and all that. Is this check coming with an embracement of risk that's appropriate? I mean, you signing up to contracts that are perhaps a little bit racier than you perhaps would like if things weren't going so fast?
Christopher E. Kubasik: Yeah. Thanks, Rob. I can assure you we're not signing up to things that are riskier or racier, if that's what you said. No. There's a desire to go fast for the customer. A lot of these awards are follow-on awards, change orders to existing contracts. A lot of classified work in ISR and space this quarter, and it seems like the new administration with their great business background understands business maybe better than prior administrations. And we're receiving cost-plus contracts where appropriate and fixed-price contracts when we move into production. Not a lot of desire to lock in long-term fixed-priced options for development programs that haven't been developed.
So I find them, so far to be, quite reasonable, and kind of enjoyable to work with. So somewhat refreshing in my experience.
Kenneth L. Bedingfield: Yeah. I'll just add from a contracts perspective, Rob. Moving faster doesn't necessarily mean taking more risk. I think the business deals that we're working on, we work closely with the customer. We got a great contracts team that I think negotiates good deals for us and make sure that we're thinking about the risk and making sure we sign up for the right statement of work. So I think all that is moving well on that front. And, you know, I think this is really something that L3Harris Technologies is built for. I mean, we're able to manage risk, move fast. I think we've got more agility.
You know, we've got smaller teams that look at these things, really make sure they align with the strategy. They align with our profitable growth plans. You know, certainly, we take risk in certain areas, and we work to offset that with performance and other parts of the portfolio. But I think it's all hanging together really nicely, and I think our risk profile as I look forward is appropriate.
Christopher E. Kubasik: Yeah. A lot of this comes from the basis of estimate, and we've now, after several years since the merger of L3 and Harris, have been able to build up some data to do a little better job with our parametric modeling and such and using AI and our digital backbone. So we're getting better and better data to base our bids on. So if you get the basis of right, whether it's the hours or the subcontracts, it's gonna make it easier to perform and make money. And that's what we're doing. We're submitting bids based on what it costs. And, in some cases or a lot of cases, we're winning, and in some cases, we're not.
But we're not gonna bid bad deals knowingly just to grow market share.
Operator: Thank you. Next question will be from Sheila Kahyaoglu at Jefferies. Please proceed.
Sheila Kahyaoglu: Chris, I really appreciate the color around the strategy. Any way you could quantify maybe just specifically TDL and Aerojet hitting their stride with having the highest revenue quarter. How does that contribute or accelerate '26 growth? And on Aerojet specifically, just increases in production, how are you thinking about the business over the next five years and the biggest growth drivers for Aerojet?
Christopher E. Kubasik: Alright. Well, thank you, Sheila. I'll say, on both these acquisitions that we made in 2023, TDL and Aerojet, are exceeding the business model that we built to approve and get our board of directors to approve these acquisitions. I'll give a little insight on TDL. I'll ask Ken to talk about Aerojet Rocketdyne. But on TDL, which you don't see the visibility, it's within the CS segment. Since acquiring them in January, the revenue has been upper single digits, so both accretive to CS and accretive to L3Harris Technologies.
The margins, as a result of the cost synergies and consolidating the facilities in Salt Lake City, streamlining and improving the roll-through yield and the production capability are almost at the CS segment level, so very high margins, especially on the commercial business model again. And the cash has been very strong, not even considering some of the tax benefits as a result of the way the transaction was modeled. So as we go into year two and a half here, very pleased with TDL. And, again, part of that upside has been our success in getting Link 16 into the space, which had never been done before.
And I think that's huge opportunities as these various comms and transport layers under Golden Dome evolve in the years ahead. Ken, you wanna talk about Aerojet Rocketdyne?
Kenneth L. Bedingfield: Yeah. Thanks, Chris. Yeah. From an Aerojet Rocketdyne perspective, Sheila, I would say there is just a significant amount of opportunity, and it does take investment. This is a long cycle, capital-intensive business. I mentioned that Aerojet Rocketdyne should be the fastest grower as we look at '26 and beyond. Missile solutions is certainly a big part of that. And, if you look at where we're investing, we did work with the government to get some defense procurement act funding for programs like Javelin, Stinger, and a couple others. So we see growth in the near term certainly in the tactical motor side, from an interceptor perspective. We're on PAC-3, standard missile, and THAAD.
And we're seeing growth and increased demand on the interceptor level. And some of that could potentially accelerate as those are a part of the Golden Dome Opportunity. And then long term, we've been investing. We've talked about large solid rocket motors, supporting programs like Sentinel, some classified programs, Next Generation Interceptor, as well as Glide Phase Interceptor, which is technically a medium-sized motor. But I would throw it in there as well as the business we have supporting Missile Defense Agency for targets that we think would be a grower related to Golden Dome and testing some of those new systems. So even within Aerojet Rocketdyne, it's a diverse portfolio.
I think they're positioned very well across key and important missile programs and certainly those that are seeing increasing demand from the customer, and we expect to drive growth for a decade or plus, in some regards.
Christopher E. Kubasik: Yeah. So we're gonna try to get to $5 billion of revenue by the end of the decade. That's our aspirational goal. I think we have pretty good visibility into that. I will say when I meet with the primes and the end customers, there's no dis nobody disputes that we have by far the best technology in this market, and I think that's been a differentiator. You heard me say we're on pretty much every interceptor in the US, whether it's in development or in production. The large solid rocket motors, I mean, we pretty much have each and every one of those in our portfolio already. So huge, huge opportunities.
Again, at the end of the day, it's about delivery and scale. You didn't ask about the new entrants. We continue to meet with new entrants. We look to partner. We welcome the competition, but when you look at the investments we're making, the primes are making, and the government's making, in less than two years, we're gonna have the facilities, the equipment to ramp up, and it's gonna take others half a decade or more to get there. So feel very, very confident that this was a good acquisition. We have a great team running it, and a highly motivated workforce. And couldn't be more proud of what we've done and what we're gonna do in the future.
Thank you.
Operator: Next question will be from Gautam Khanna at TD Cowen. Please proceed.
Gautam Khanna: Yes. Good morning, and great results.
Christopher E. Kubasik: Thank you.
Operator: I had a two-part question. In the president's budget request, you may have seen the military radio line items were a little bit softer in '26. Likewise, armed overwatch and some others. Wanted to get your perspective on what the growth rate might be beyond '26 for tactical radios. And some of those other areas with the backfill from foreign or otherwise. You could just give us some framework to think about that.
Christopher E. Kubasik: Yeah. Great. Great question. You know, we'll start with the radios. I'll let Ken talk about armed overwatch. But first of all, it is the '26 PBR. So this is the first step of a multiple-step process. So, we noticed what the cuts in the HMS and the COPS line, those two line items, but there's quite a long way to go through the process to see where that ends up. And historically, customers weigh in, members of Congress weigh in, and ultimately, the end users weigh in. So we'll see how that plays out.
But when you look at the actual numbers, we're comparing two line items known as HMS and COTS to the same two in '26, but there was a third line item added called NextGen command and control or NGC2. So I kinda look at those three as the telecom and the radio line items. And those are, on a combined basis, several hundred million more than 2025. So the question is what is in NGC2? And as we've looked at it, there is clearly a transport layer where we believe our software-defined radios and our network capability and architecture capability can meet those needs and continue with the modernization.
So I think a lot of the modernization that needs to continue, we're just talking US domestic, is embedded within that NGC2. And our teams are looking at how best to proceed. So we'll monitor this situation, but we'll let you know as that plays out. I don't see this as being a significant headwind based on our performance and based on our capability. And, of course, international, we've already covered. We have great opportunity there as well. So in total, tactical comms, radios, or TCOM sector continue to see growth for the foreseeable future. Haven't even mentioned the waveforms and some of the other product sales that we have with much, much higher margins.
So you wanna talk about armed overwatch?
Kenneth L. Bedingfield: Sure. Yep. Thanks, Gautam. From an armed overwatch perspective, I would say, you know, we did see that there's a dip in quantities, in think it's '26. No concerns from our perspective, and I think a couple of things, you know, it's a long cycle program. It doesn't impact our production flow. You know, we've got plenty of aircraft in order, and I think we've got a good delivery cadence on that. And maybe more importantly, we're seeing a fair amount of international opportunity for armed overwatch that will look to drive some awards for.
And certainly, if you think about the overall ISR business, and as it rolls up to IMS, nothing in that profile from a funding perspective that would impact our ability for growth in the business. So we're tracking it, looking to fill it in with some international opportunity.
Operator: Thank you. Next question will be from Seth Seifman at JPMorgan. Please proceed.
Seth Seifman: Thanks very much, and good morning, and nice results. I wanted to ask, maybe if you could level set us on where things stand in the mission networks piece of the business within SAS? Kinda how big is that now? And it's something that kinda thought of as maybe rolling off over time. But it seems like there's opportunity in the near term given FAA demand and, you know, maybe the way that the FAA is looking to do things in the future that piece of the portfolio opens up some longer opportunities as well. So I guess how should we think about?
Christopher E. Kubasik: Yeah. Thanks. Thanks, Tim. Good morning, and thanks for the kind words. We'll pass it on to the team. Yeah. We don't talk much about the Mission Networks business. I mentioned a few things in my prepared remarks. Our specialty here is really on the telecommunications and the telecommunications infrastructure. And, specifically, the migration from the older copper wire to fiber that you might have heard Secretary Duffy talk about. So we were able to successfully upgrade the Newark Airport, as I mentioned, which got a lot of press over the last several months. But there's literally dozens of other opportunities and literally thousands of sites that need to transition from kind of in the sweet spot of doing that.
I'll just say, older technology to newer technology, and we're. So you've heard about the need for a brand new air traffic control system. We will not at this point have any interest in being the prime integrator or try to manage that whole portfolio. I think there's probably other companies that are better suited for that. We wanna stay in our sweet spot, which is really the telecom infrastructure, the broadcast services, the data integration, and data services. So all in, I think this sector is right around a billion dollars or so, isn't it? Yep.
With good margins, and we would expect this to continue to grow, and it's part of our national security infrastructure supporting the US government. So a good business and, you know, clearly, more upside today than maybe a year or two ago. So the team really came through and did a great job.
Operator: Thank you. Next question will be from Scott Micas at Amelius Research. Please proceed.
Scott Micas: Morning, Chris and Ben. Nice results. I wanted to ask about the Wolfpack announcement you guys came out with. You're effectively gonna be competing with Lockheed and Raytheon for two of Aerojet's largest customers. I'm just wondering when you initially acquired Aerojet, was that something you decided to do more recently, or has it been in the works for a long time? And then long term, what do you see as the revenue opportunity for Wolfpack both domestically and internationally?
Christopher E. Kubasik: Alright. Thanks, Scott. I wasn't sure I was gonna get a pack question today. So I'm glad you keep abreast of our announcements. Yeah. This is something that we've been working on well before the Aerojet Rocketdyne acquisition. It's a unique, transformational capability. LaunchFX is something that each of the DOD service branches need. And we think we have a unique offering that we've been developing. One of these will actually be a Kinetic Strike, and the other will be more of a heat EW, kinda falls in that attritable market that everybody keeps talking about, and I think these are quite affordable relative to other products that are out there.
So we kinda have to start small and build up there. We do have a hot production line. We've had demos well over 40 flights that have been tested, and there's a lot of interest here domestically. Whether we can export or not to be determined. And, you know, this asset, depending on which variation you get, obviously, goes inside larger platforms. So, you know, we'll try to get a couple hundred million here in the next several years and see where it goes from. But pretty innovative, pretty creative opportunity. And, of course, with Aerojet Rocketdyne, it just gives us more and more synergy.
Although these particular assets don't have solid rocket motors in them, probably all I can say from a technical standpoint.
Operator: That's so we will take the last question. Certainly, sir. And the last will be from Jason Gursky at Citi. Please proceed.
Jason Gursky: Ken, just a quick clarification question for you and then, Chris, just a bigger picture one, you don't mind. On the clarification one, has there been any change, Ken, to your expectations on how much of the LHX next savings you'll pass on versus what gets captured by the customer? I think you've commented on that ratio in the past. And then, Chris, I was wondering if you just spend a little bit more time on space. I know there's been quite a few questions on it today already, so I appreciate the color there. But I'm just kind of curious.
The overall demand environment for space and any kinds of new projects that you might see or new technologies, programs that you see on the horizon, either here domestically or maybe even over in Europe and whether European capabilities are gonna be something that they're gonna spend money on in, you know, the space domain here and whether companies like LHX you think might play a role in increased spending in Europe? Thanks.
Kenneth L. Bedingfield: Yeah. Jason, on your first question, in terms of LHX NEXT, no change of any significance from our expectation around the margin opportunity. The program goes out and identifies cost savings opportunities and really makes sure that we focus on the run rate opportunities that will impact the longer-term business. We work to generate those savings and then certainly flow it through our contract mix. We do expect roughly 30 to 40% of that to generate margin opportunity for us. And the remainder will be passed back to the customer through lower cost and essentially providing some benefit to the customer as well as our competitive positioning for winning new work. So no change to the model.
Different types of cost savings have different profiles to them. But overall, at a portfolio level, we still expect roughly about 30 to 40%.
Jason Gursky: And, Chris?
Christopher E. Kubasik: Yeah. Jason, great question on space. We've highlighted this in the past as kind of a key part of our trusted disruptive strategy, how we move it up the food chain. You know, we don't really talk a whole lot about some of the things we do for NASA and NOAA, especially in the weather satellites. And weather satellites have a significant military application in addition to all of us looking at our apps and checking the weather on a daily basis. So we actually see some international opportunities using our weather satellite technology, which is the same technology we used to innovate into the missile tracking, missile warning. So there's a lot of opportunities for us.
We continue to stick with our strategy. In a lot of cases, we're the prime now, which we weren't historically. We still sub on some of these exquisite geosynchronous satellites focused on our great antenna strategy or technology. And we're also a merchant supplier even on some of these transport using Link 16 and some other technologies that we've talked about. So a lot of growth potential. I'll say, since the new administration, I think things slowed down. You see that across the industry for the first six months. As the new administration comes in place. As we wait for the confirmation.
As we figure out what's gonna happen with SDA, MDA, SSC, and all these other customers that procure satellites. So I think we're gonna pick up some momentum here in the third and fourth quarter as the architectures are final. But we pretty much play in every orbital plane in every size, and you know, as a prime, a sub, and a merchant supplier. So we're looking for good things out of space. And, again, we're performing. We're delivering. And that's gonna lead to more business. So as we close today's call, I wanna thank my leadership team and our employees for their continued focus, agility, and commitment to the mission.
More than 90% of my executive leadership team is new to the company or has taken on expanded roles in the last three years. The team brings a strong mix of defense industry experience, operational expertise, and commitment to advancing national security priorities by investing in talent, technology, and long-term growth. We are fearless. We have the courage to defy the status quo and challenge convention. We don't follow trends; we set them. And we're forging original paths that advance mission success. The progress we're making is a direct result of their teamwork, their focus, and their commitment. So thank you all for joining us today, and we look forward to connecting with many of you in the weeks ahead.
Thank you.
Operator: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines.